Virus Risks Lead NAFCU to Lower GDP Estimate

As the coronavirus continues to spread, the toll is felt not only in deaths, illness and fear, but also in the global economy.

Trade and supply networks that have grown and deepened over the past several decades might be altered permanently. And at least in the short term, the prospects for U.S. economic growth have diminished, according to Curt Long, NAFCU’s chief economist.

On Tuesday, Long rolled back his forecast for U.S. GDP growth this year to 1.7%, down from his previous 2% forecast in “responding to the risks of the virus.” Both numbers are down from U.S. GDP growth of 2.3% in 2019 and 2.9% in 2018.

Long said the overall outlook for credit unions has been good. Although some loan growth rates, particularly autos, have diminished, the growth rates remain healthy and the comparisons are with periods of exceptionally high growth.

Consumer spending has been the main bright spot in the economy, and in the past year the housing market has been improving and home construction has been rising, which will reduce the supply constraint and perhaps slow price increases.

“There’s a lot to feel good about if you avoid the elephant in the room — obviously the coronavirus and the market volatility around that,” Long said.

Aggressive measures by China and other countries to contain the virus are also disrupting supply chains and changing them in ways that will outlive the current outbreak.

In many ways, reaction to the virus is causing disruptions to supply chains in ways similar to President Trump’s trade actions.

Apple has reported an impact on its earnings, and other companies are likely to feel the effects as well.

“This is not a good situation for business confidence and investing in capital investment,” Long said. “And business investment has been one of the weakest spots of the economy in the last year or so.”

The latest measures of consumer confidence remain high, but the ones Long watches have not yet reflected this month’s rising concerns.

Meanwhile, rising risks from the virus triggered a global stock market drop that entered its sixth day on Thursday. As of noon the S&P 500 index was down 10% from its Feb. 19 high.

“A lot of people are writing down their estimates for GDP in the first quarter, or even the first half,” Long said.

Among them is Goldman Sachs, which on Monday reduced its GDP forecast for the first quarter to 1.2% from 1.4%, citing potential production cuts and other economic risks from the virus.

The Mortgage Bankers Association, which has had a more conservative outlook on U.S. economic growth, raised its forecast for the first half to 1.0% growth, up from 0.8% in its January forecast. The latest forecast is dated Feb. 18, before the Centers for Disease Control warned Americans to prepare for the virus to spread in the United States, and this week’s stock market sell-off.

For the year, the MBA predicted GDP will grow 1.3%, rising to 1.4% in 2021 and 2.3% in 2022.