WASHINGTON – In revising its 2007 forecast, CUNA's economics team told credit unions to expect a "notable slowdown" in economic growth in 2007.
It will not be a recession, the group emphasized, but CUNA Chief Economist Bill Hampel said a slowdown could mean tough times for credit unions.
"The coming year will be a difficult one for credit unions as the economy transitions to a slower growth path," he said. "Savings growth will be hard to come by, and downward pressure on the bottom line will continue. However, because weaker growth will shore up net worth ratios, credit unions will be able to accept lower net income." In updating their forecast, CUNA's economics team lowered its outlook for 2007 economic growth from 2.5% to 2%. The trio expects 2006 to end at about 3.3% growth. Contributors to slower consumer and business investment spending for the remainder of this year and into next year are rising interest rates, high oil prices, low household savings, and record debt.
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They also said they believe the Federal Reserve is likely done raising rates for this cycle at 5.25%. "There's a small chance it could hit 5.5 percent," Hampel added. The yield curve will stay flat until the Fed begins lowering rates in the spring to compensate for the slowing economic activity.
The CUNA economists also: * Elevated their 2006 inflation forecast to 3.5% with 2.5% for 2007. * Foresee credit union savings growth hitting 3% this year, the weakest in 60 years, but 2007 will see a boost up to 8% growth as the economy slows. * Expect loans to slow from 8% growth this year to 6% for 2007. * Anticipate full employment level of 4.7-5.0% in 2006, but warned that credit unions should expect "modest" wage pressure if the rate goes lower.
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