MADISON, Wis.–A CUNA economist is expecting the coronavirus pandemic to hit the U.S. economy as well as credit unions hard over the next two quarters, even as there is some good news to be found, relatively speaking.
But the forecast, noted CUNA’s chief economist, Mike Schenk, comes with a caveat.
“The new forecast is, not surprisingly, a lot different than the previous forecast we posted,” said Schenk. “One important thing to keep in mind with the economy and credit union operations is our outlook a week ago was significantly different than two weeks ago, and our outlook now is significantly different than one week ago. The changes are coming fast and furious and much more frequent than they have been historically.”
With that caveat noted, Schenk added, “Having said all that no way to sugarcoat it. This is going to be one of the greatest interruptions since the Great Depression. Twenty percent of the economy is at severe risk going forward. We project a decline at an annualized rate of 12% in the second quarter and you have to go all the way back to the Great Depression to see that. We then see the economy contracting at a much slower pace in the third quarter and growing a bit in the fourth quarter. Overall, we see a decline of 2.25% in the economy in 2020.
“That is a huge shock,” continued Schenk, “and it has huge implications for CUs. We expect ROA to decline from 90 basis points to about 50 basis points. That’s going to put significant pressure on some credit unions' net worth ratios. The economic dislocations we see will also have significant implications for credit unions over the course of the year and into 2021.”
‘Pause & Think’
Schenk said it is his and CUNA’s recommendation that in response credit unions “pause and think back to how we responded during the Great Recession. Coming out of the Great Recession credit unions generally remained engaged and continued to serve consumers in really obvious ways when the for-profit sector hunkered down and licked its wounds and turned consumers away. The result was four-million memberships every year for four years. That’s astounding. Remaining engaged and doing what you can to help members and we believe will once again pay dividends.”
If there is some good news to be found in the current pandemic Schenk said it is the speed with which Congress has responded with aid and relief legislation and the fact many credit unions and consumers are in the best financial shape they have been for some time.