CUNA Adjusts Economic Outlook Due to Possible Trade War

After weighing the potential fallout from Trump’s punitive trade tariffs, CUNA economists decided to raise their estimate for economic growth slightly this year, and lower it slightly for 2019.

In a statement issued late Thursday, CUNA said pushback against punitive tariffs by congress, business leaders and stock traders might soften their impact.

“We have growing concerns over calls for trade tariffs and the increasing possibility of trade war,” the CUNA statement said. “In the end, we believe tariffs will be limited and largely symbolic—and that the policy ultimately adopted will exclude a number of key trading partners.”

As a result, CUNA said its forecast changes were “modest:”

• It increased its forecast for gross domestic product growth in 2018 from 2.60% to 2.75% “with the stimulative effect of tax cuts overwhelming a modest trade-related drag. We expect growth to slow to 2.5% in 2019 as higher market interest rates put more obvious pressure on borrowing and spending.”
• Its forecast for the Federal Funds Rate now includes three 25-basis-point rate hikes in 2018 as opposed to four. It expects the year-end rate to be 2.15%, down from its earlier prediction of 2.4%.
• Credit union loan portfolios will rise at a slower rate: 9% this year, down from its earlier 10% forecast, and 8% in 2019. “This, in part, also is reflected in membership growth which we revised down from 3.8% to 3.5% in 2018, and to 2.5% in 2019.”
• Savings will grow faster: up 7% this year, instead of 6%, and rising 8% in 2019.

The slower loan and membership growth were reduced in part because growth had been far above average, driven by higher auto lending which is likely to decline with higher interest rates.

“Credit union membership growth has been on a tremendous run,” CUNA said. “This has been largely driven by a strong economy, lower loan rates at credit unions and big increases in indirect auto lending.

“As interest rates rise and pent up demand from the recession softens—particularly for auto loans—we expect strong membership growth to ease a bit in both 2018 and 2019.”

The forecasts CUNA made a year ago for 2017 turned out to be close to the mark. Its forecast of 2.3% GDP growth was a bullseye, while it slightly underestimated membership and savings growth.

CUNA predicted a 3.5% gain in membership, but actual membership rose 4.1%. Savings, which were predicted to rise 5.5%, came in at 6%.