MADISON, Wis.–Saying it was appropriate he was speaking to the media on Halloween, CUNA’s chief economist is offering an updated forecast that sees a recession ahead.
“For the first time in my memory, we have a newly posted forecast that calls for the economy to be in a recession in the near future,” said CUNA Vice President of Research and Policy Analysis Mike Schenk.
Schenk noted U.S. economic growth in 2022 is expected to finish above 2%, but he is forecasting it will “break even” in 2023.
“We see a mild recession in the first half of 2023,” said Schenk. “We expect the (the consumer price index) to moderate from 7.5% this year to 4% next year. The unemployment rate to rise to 4.5% by end of next year. That means relative to where we are today, about 1.5 million people will be out of work and certainly there will be more pain and suffering for many consumers and credit union members.”
Fed Funds Projections
Schenk said CUNA also expects the Fed Funds rate to increase to 5% next year as the Fed continues to raise rates in an effort to tamp down inflation. With lending at credit unions well above forecasts in 2022, CUNA is projecting rising rates will help cool lending growth to 7% in 2023, with savings projected to grow 6%.
Those factors will contribute to a situation some credit unions are already facing: liquidity pressures.
“Having access to liquidity is very important,” said Schenk. “The loan-to-share ratio will close to 80% at the end of this year and over 83% at the end of next year. There will be significant change in the liquidity picture that we have already begun to experience and it will be even more obvious.”
Some Good News
There is some “good news,” according to Schenk, in that delinquencies are not expected to rise much and asset quality should remain solid.
On the flip side, ROA, which, was an average of 110 BPs in 2021, will be approximately 80 BPs this year and will shrink to 60 BPs in 2023.
The other good news: “Net worth ratios remain relative healthy levels at 10.5%.”
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