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Jan 17, 2020

Nearly half of US and UK companies expect recession this year

US-China trade war and Brexit cause pessimism among executives, study finds

US and UK executives are feeling pessimistic about the economic prospects for 2020 after a year of economic turbulence and geopolitical turmoil, according to a new study.

About 46 percent of UK firms and 45 percent of US firms expect their economies to slide into recession during 2020, according to trade finance provider Stenn International. In fact, 33 percent of UK businesses and 15 percent of US businesses expect economic contraction of between 1 percent and 3 percent.

Kerstin Braun, president at Stenn, says pessimism among US and UK executives is driven by years of negative impact from the US-China trade war and Brexit’s impact on the UK economy.

‘[Brexit] was already a long negative process and the economy slowed down. A lot of UK retailers defaulted,’ she says. ‘In the US, the first tariffs were implemented in early 2018, so it’s been two years now during which companies were feeling the impact of the tariffs. Many US importers could not pass on the tariffs to their customers, so the importers suffered and these tariffs ate right into their margins and profits.’

US President Donald Trump signed a phase-one trade agreement with China on January 15, but Braun says relations between US and Chinese businesses have changed, and she believes there will be a slow decoupling of the relationships that began to form back when former US president Richard Nixon opened up relations with China.

‘Even if we have a good US-China trade agreement this week, it still won’t heal what was broken by this trade war,’ Braun explains. ‘Many companies will not go back and source from companies in China. They will try to source their supply chains outside of China, which is good because you don’t want to rely on one country too much for imports, especially not one where political difficulty could complicate things.’

Braun also says technology companies will need to change their approach to China, and that we may have traded a trade war for a tech war, citing Huawei’s troubles and Apple’s partnering with Foxconn. She suggests that tech companies will have to shift focus to protecting the information of US customers. ‘Instead of innovating, tech companies will have to look backwards, clean up and protect themselves,’ she says.

Debt levels also pose a significant threat to the US economy, Braun adds. High consumer and federal debt create the potential for significant disruption in the event of a shock in the market, and this is especially concerning given all the uncertainty in the market now, she says. When the cash-to-debt ratios get to such a negative point, it becomes difficult for companies to invest in innovation or their own businesses.

Meanwhile, Chinese firms are confident in the economic outlook for this year: 93 percent predict growth of between 6 percent and 7 percent. Chinese confidence has been bolstered by the government’s injection of liquidity into the markets, as well as the phase-one trade deal struck between its government and the US. The US has also removed China from its list of currency manipulators.

Researchers at Stenn spoke to more than 700 senior executives at medium-to-large businesses across the UK, US and China to gauge their economic outlook.

Mike Schnitzel

Mike Schnitzel is a freelance writer and editor based in New York. In addition to being a contributor to IR Magazine , he is the technical editor at Refinitiv Lipper and freelances regularly for many different outlets. His articles have appeared in...