Coronavirus and Equipment Finance

What is the state of the U.S. economy and the equipment finance industry in the face of the global COVID-19 pandemic?  This was the focus of a recent webinar “Coronavirus and the U.S. Economy: Implications for the Equipment Finance Industry” hosted by the Equipment Leasing & Finance Association.

Below are 5 key takeaways:

  1. A global recession is already underway. China is slowly forging a path to economic recovery following its coronavirus outbreak, but that process is slow and uncertain. China is being held back “by slowing export demand to Europe and to the U.S.,” noted speaker Dr. Robert Wescott of Keybridge, LLC. He added that Europe’s economy is being ravaged by COVID-19 and emerging markets such as India and Latin America may be next to suffer sharp downturns.
  2. The U.S. economy is also already in recession. The service sector, historically a resilient engine of growth, is leading the downturn.  These industries, such as travel and tourism, restaurants, entertainment and personal services, rely on human contact. “The U.S. is in the midst of a very notable recession,” said Wesctott.  According to Wescott, the second quarter will be awful.  “We got bleak industrial production data for March, we got bleak retail sales data for March, and we think we’re going to see a continuation of really bad numbers for the next couple of months.”
  3. The economy could be back in growth mode by the end of the year. The Foundation’s Outlook report forecasts a deep contraction in the U.S. economy in Q2. However, Keybridge’s Jeff Jensen projected a return to growth in Q3 and Q4. Overall, the U.S. economy is expected to contract -5% to -9.4% in 2020. “The economy is going to be much smaller at the end of the year than it was at the beginning of the year,” he said.
  4. This is likely to be a very tough year for the equipment finance industry. After slowing to the weakest growth since 2016 last year, equipment and software investment is expected to plunge along with the rest of the U.S. economy. Overall, investment in equipment and software is projected to contract between -8.6 and -13.5% in 2020. Industries like computers and medical devices may be more resilient, however.
  5. Small businesses are at heightened risk. Bigger corporations have more financial room to stave off short- and medium-term shocks. A major shakeout in energy is coming, but this will likely lead to consolidation benefiting larger firms. Look for lingering pain in travel and tourism, accommodation and traditional retailing. “There’s a lot of uncertainty both with respect to how we reopen the economy and how many jobs are still there when we reopen the economy, particularly in the small business sector,” said Jensen.
Source:  ELFA