As we finish out the firstquarter of 2018, talks around renegotiating the North American Free TradeAgreement (NAFTA) cast a shadow of uncertainty on the futureeconomic health of the United States, Mexico, and Canada. With the Trump administration talkingtough and threatening to pull out of the trade deal,business leaders are finding it difficult to measure risks in NorthAmerican markets. Although a change to NAFTA could indeed havemajor effects on companies that do business in the region, the goodnews is that signs point to economic resilience.

In support of our trade credit insurance business, Atradius recentlyreleased a report on the economic health and anticipatedfuture performance of major North and Central American countries.That analysis anticipates economic growth of 2.5 percent or higherfor the United States in 2018—a continuation of the momentumexperienced in 2017, which saw a 2.2 percent increase. This year'sprojected growth in the U.S. economy will be facilitated by thefollowing factors:

  • Steadily decreasing corporate insolvencies.Insolvencies spiked following the 2008 recession and have steadilydecreased ever since. A 2 percent decrease is predicted for2018.
  • Robust growth in consumption. Accounting fornearly 70 percent of U.S. GDP, and the main engine of economicgrowth since 2014, household consumption is expected to remainrobust in 2018, increasing 2.5 percent over 2017. U.S. privateconsumption is aided by falling unemployment (expected to fallbelow 4 percent in 2018), wage growth, higher home prices, ahealthy stock market, and a low household saving rate.
  • Rising exports. Political uncertainty and astronger euro caused the dollar to weaken in 2017 compared with2016. As a result, analysts expect U.S. exports to increase another3 percent in 2018, after contracting in 2016 and recovering in2017. Rising exports signal an expanding manufacturing sector,which is anticipated to grow 2.6 percent this year.

Recent changes to tax law are also expected to positively impactthe U.S. economy, particularly aiding exports, investment, andprivate consumption. The December 2017 tax overhaul is predicted to amount toapproximately $1.5 trillion in tax relief over the coming decade,mainly through a 14 percent decrease in the corporate tax rate andtemporary tax breaks for both businesses and individuals. However,uncertainties remain around whether these changes will strainpublic finances in the coming years.

Canada and Mexico

The Atradius report is less rosy in its growth projections forMexico and Canada. In 2017, Canada's economic growth accelerated to3 percent, representing a slight rebound from the 2015 and 2016slowdown caused by decreased oil prices and slowed investments inmining, quarrying, and oil and gas extraction. We do not expectthis acceleration to continue into 2018. Instead, overall economicgrowth in Canada will likely dip slightly this year, to 2 percent,due to a slowdown in private consumption and governmentspending.

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