UNITED STATES

The US remains the world’s largest economy, accounting for approximately 24% of global GDP. To keep the economy going after its unprecedented collapse in Q2 2020 due to the Covid-19 shutdowns, the government implemented swift and massive policy responses. On the fiscal side, support of approximately USD5trn — 25% of GDP, the most in the developed world — was deployed to help both citizens and businesses. Consumers received direct payments, extended and increased unemployment benefits and tax reductions. The Paycheck Protection Program (PPP) likely kept thousands of business out of bankruptcy. In fact, bankruptcy filings fell in Q2 2020 to 5,154 from 5,952 in Q1 2020, a decline of -13.4%. Bankruptcy filings have fallen -37% since before the pandemic. The monetary policy response was equally impressive as the Federal Reserve immediately set the policy rate to 0%, started purchasing Treasury and mortgage- backed securities at an aggressive pace and created several new lending programs. The result was that unlike in the previous financial crisis, the credit markets continued to operate normally as they were flooded with liquidity. The growth outlook remains positive through 2022 for several reasons: There is plenty of work in the pipeline as the Institute of Supply Management (ISM) surveys are at historically high levels of new and back orders; new orders for durable goods are rising rapidly; demand for housing is strong and the yield curve is positive. Most importantly, fiscal policy pumped trillions of dollars of excess savings into consumers’ pockets, which drove a dramatic recovery in personal consumption (70% of the economy). Moreover, there are still excess savings to power personal consumption into 2022. Overall, the economy will grow at the fastest rate in three decades in 2021. In 2022, we expect the economy to grow at a historically strong rate of over +4%. However, these aggressive policies have stoked inflation. At the same time, there is a serious shortage of labor, which is causing wages to rise, further adding to inflationary pressures.

The business environment in the US is very accommodating, ranking 6th in the World Bank’s 2020 Ease of Doing Business report. The hallmarks of the economy include strict enforcement of contracts, the ease of resolving insolvencies, the rule of law in general and the relatively easy access to credit.

Politics are very divisive, which will result in a scaling back of President Biden’s aggressive agenda of infrastructure spending, social spending, green technologies and the tax increases needed to fund them all. Democrats hold a narrow margin in the House, but a division between moderates and progressives has effectively split them. In the Senate, Democrats and Republicans both hold 50 seats (with the Vice President as a tiebreaker) and like in the House, there are some Democratic holdouts who can derail legislation. The mid-term elections for Congress come in November 2022, and there could be significant swings in both houses.