CUNA Economists see ‘Notable Slowdown’ in 2007
Downward pressure on bottom lines, but lower net income will be acceptable

July 25, 2006

FOR IMMEDIATE RELEASE
Contact:
Patrick Keefe, CUNA Communications
(202) 508-6765
pkeefe@cuna.com

WASHINGTON -- It will not be a recession, but expect a notable slowdown in the growth of the economy in 2007, according to the latest revised economic forecast by CUNA’s economic team.

CUNA’s three economists – Chief Bill Hampel, Mike Schenk and Steve Rick – update their economic forecasts every two to three months, to reflect the latest changes in the economic environment. According to Hampel, a slowdown may mean difficult times ahead for credit unions.

“The coming year will be a difficult one for credit unions as the economy transitions to a slower growth path,” Hampel 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.”

The updated CUNA economists’ forecast lowers their outlook for economic growth for next year from 2.5 percent to 2 percent. Growth for all of this year will come in about 3.3 percent, after averaging 3.5 percent over the past five years.

The trade group’s economists also believe that the Federal Reserve is essentially completed with raising interest rates for the current cycle – meaning the Fed Funds rate has “most likely” peaked at 5.25 percent. “There’s a small chance it could hit 5.5 percent,” Hampel added.

The shape of the yield curve will remain essentially flat, according to the forecast, until next spring when the Fedl beings lowering the Fed Funds rate in response to the slowing economy.

In other forecasts, the CUNA economists stated:

• Inflation: They have raised their 2006 forecast to 3.5 percent; they expect it in 2007 to slow to 2.5 percent.
• CU savings: Growth this year will be 3 percent (weakest rate in more than 60 years); 2007 will see a recovery, with 8 percent growth as the economy slows.
• CU loans: Slow down this year, to 8 percent growth, and even slower (6 percent growth) in 2007.

For the complete CUNA economists’ updated forecast, see CUNA’s website at http://advice.cuna.org/econ/economic_forecast.html.

With its network of affiliated state credit union leagues, Credit Union National Association serves more than 90 percent of America's 9,000 credit unions, which are owned by more than 87 million consumer members. Credit unions are not-for-profit cooperatives providing affordable financial services to people from all walks of life. For more information, visit www.cuna.org.

Copyright © 2008 - Credit Union National Association, Inc.