Economic Expansion the Call for Near Term, CUEG Says

ARLINGTON, Va.-The Credit Union Economics Group has said that the remainder of this year through 2005 should bring increased lending and slower deposits for credit unions. CUEG’s latest report shows an anticipated GDP growth of 4.4% in 2004, and 3.9% in 2005, a slight improvement from their previous forecasts. “The U.S. economy is transitioning from a policy-based recovery (fiscal and monetary policy) to one of self-sustaining growth with an improved business outlook replacing some government spending stimulus,” NAFCU Chief Economist and Director of Research Tun Wai, a CUEG member, explained. With a slowly declining unemployment rate and higher consumer price index (CPI) inflation driven by energy costs, CUEG expects interest rates to climb over the next two years. “We expect the Fed Funds rate forecast to end the year between 1.75% and 2%, moving fractionally above 3% by 2005,” another CUEG economist Dave Colby, CUNA Mutual Group chief economist, said. “Mortgage interest rates will climb to 6.7% by year-end and move up above 7% in 2005.” CUEG economists added that total credit union loan growth for 2004 should reach around 9.8%. Vystar Financial Group CEO Scott Mainwaring explained during a teleconference with reporters that overall, credit union lending has been very strong. “Rates are moving up and that will actually benefit credit unions as they’re able to earn more on loans and investments.From what we’re seeing here locally and from talking to credit unions throughout the country, lending has been strong overall,” he said. “I think in the real estate area, a lot of people had expected real estate lending to slow down and it has but its still growing at a very solid level.” Mainwaring added that his loan growth has been “decent” but he would like to see more; loan rates have gone up slightly, he said. State Employees (Michigan) Credit Union Senior Vice President and Chief Financial Officer Brian McVeigh agreed, “We see very solid and steady loan growth both in vehicles and home equity loans and it has been enough to make up for what we’ve lost, although we didn’t lose all, of the mortgage activity.” Both credit union representatives said they had not adjusted their dividend rates since the Federal Reserve’s decision last month to raise the prime 25 basis points. Loan growth is expected to be dampened some from credit unions selling off first mortgages to manage interest rate risk, CUEG said. On the flip side, share growth is expected to hit about 7.3% by in 2004 and on into 2005. [email protected]