Virus Leads CUNA Mutual to Lower Loan Growth Estimate

A woman walked into a small hardware store in Columbia, S.C., late Friday and asked the manager if they had any masks.

The manager said no. She replied that the website showed the store still had a couple. Yes, but they’ve since been sold, he said.

When asked about the conversation, he said the woman was about the 100th person that week to stop in the True Value Hardware store looking for masks because of the coronavirus.

The hardware store conversation is an indicator of how widely concerns have spread about the Covid-19 virus. As of Monday, the outbreak has claimed more than 3,000 lives, including the first two over the weekend in the United States. Confirmed cases have risen above 89,700 in 65 countries, including 88 in the United States.

On Friday, CUNA Mutual Group Chief Economist Steven Rick said disruption from the spreading Covid-19 virus is likely to cause credit union loan growth to slow to 5% this year, down from his January estimate of 6%. Either estimate represents a further slowing for credit union loans after growing 6.6% to $1.14 trillion in 2019, and 8.9% in 2018.

“If it goes into a massive pandemic, we might even see something lower than that,” Rick said. “There is so much uncertainty right now about how fast this is spreading across the world.”

A report issued Monday by the Organization for Economic Cooperation and Development said the virus is expected to cause world economic growth to slow to 2.4% in 2020, 0.5 percentage points lower than it had estimated in November. That’s assuming the virus’ spread is limited and its impact begins to fade this spring.

“New cases of the virus in other countries are also assumed to prove sporadic and contained, but if this is not the case, global growth will be substantially weaker,” the OECD said in an 18-page report titled “Coronavirus: The world economy at risk.”

The report stated, “A longer lasting and more intensive coronavirus outbreak — spreading widely throughout the Asia-Pacific region, Europe and North America — would weaken prospects considerably. In this event, global growth could drop to 1.5% in 2020, half the rate projected prior to the virus outbreak.”

If world GDP rises just 1.5% this year, it “could push several economies into recession, including Japan and the euro area.”

On Feb. 25, NAFCU Chief Economist Curt Long lowered his estimate for U.S. GDP growth to 1.7%, down from his previous 2% forecast in response to virus risks. Both numbers are down from U.S. GDP growth of 2.3% in 2019 and 2.9% in 2018.

Rick, with CUNA Mutual Group in Madison, Wis., said if the current spread of the virus develops into a pandemic, it could lower U.S. GDP growth this year to 0.5% to 1.

Under the OECD’s milder scenario, the U.S. economy’s inflation-adjusted gross domestic product will slow from 2.3% in 2019 to 1.9% in 2020, an estimate only 0.1 percentage points down from its November forecast.

The OECD report did not provide an estimate for the United States under the harsher scenario, but its downward revision for North America this year goes from a range of -0.1 to -0.2 points in the mild scenario to a 1.5-point drop in the worse scenario.

“Initially, the adverse impact is concentrated in China, but the effects in the rest of Asia, Europe and North America gradually build up through 2020” in the harsher scenario, the report said.

“The major part of the decline in GDP stems from the direct effects of the reduction in demand, but the impact of heightened uncertainty accumulates gradually,” it said. “World trade is substantially weaker, declining by around 3.75% in 2020, hitting exports in all economies.”