There will be a "fragile, low-growth economy," CUNA Vice President for Economics and Statistics
Mike Schenk told attendees at CUNA's America's Credit Union Conference and Expo. He also predicted that there will be little change in short-term interest rates.
The CUNA economist said that the path to a full-fledged recovery will be "long and difficult'' because of the breadth and depth of the damage caused by the recession. He noted that the overall value of people's net worth declined by $11 trillion in 2008 alone, and since the recession started in December 2007, there have been six million jobs lost and nine million people are underemployed.
The current unemployment rate is 9.4%, and Schenk noted that many forecasts have said it could rise to as high as 10.5% before starting to fall.
CUNA Senior Vice President for Research and Chief Economist Bill Hampel said the economic woes will result in faster growth for savings yet slower organic loan growth and a "significant increase in loan delinquencies and losses." This will cause a "downward pressure on net income."
He noted that loan delinquencies through April had been 1.5%, and that will likely increase to 2% by the end of the year.
Hampel also urged credit unions to have a "restrained response" to their losses because they were caused by factors beyond the control of credit unions, which were "collateral damage in the financial crisis and recession."
For example, he said higher than average loan losses don't necessarily mean credit unions have to make drastic changes in their lending policies because most members who are having problems didn't act irresponsibly.
He did, however, urge credit unions to increase their capital levels in light of policy changes that will likely be implemented in the months and years ahead.
"Now, instead of being comfortable with capital between 7% and 9%, I would recommend between eight and ten," he said "What is going to happen in Washington, if anything, in the next year or so will be an increase in capital requirements."