What to expect from the economy in 2025
The February Economic Update looks at what credit union economists forecast for 2025, with updates from the outlook at the end of last year's fourth quarter and considering important economic developments since their previous forecast.
The 2025 forecast: key points
The concerning rise in unemployment over the first half of 2024 stabilized and finished slightly lower at the end of the year at 4.1 percent.
Risks to the labor market have decreased, and our economics team expects no change in unemployment in 2025.
While inflation finished 2024 higher than the Federal Reserve target of two percent, inflation is expected to subside in 2025, though it will likely take the full year to approach the Fed's target.
The 10-year Treasury rate will likely remain elevated in 2025, as the government deficit will likely remain large throughout the year. This will, in turn, require the continued issuance of Treasury notes.
There are a couple of areas of uncertainty:
- The predicted GDP growth of 2.3 percent is on par with the potential growth from the Congressional Budget Office, but this comes with uncertainty in the assessment.
- Political risks related to the policies pursued by the new administration and the prioritization of those policies could have major impacts on labor supply, inflation, and deficit spending.
"The economy enters the year in a strong position."
The credit union forecast
In terms of savings, growth is expected to continue to improve in 2025, with a 6.5 percent share growth rate, close to the long-run average.
This growth will be in share certificates as it has been. However, this also means credit unions will continue to see stress around the cost of funds.
As interest rates remain current, our loan growth forecast has been downgraded. Sales of existing homes remain low, and while sales of new homes have picked up, the interest rates have impacted construction activity.
The ROA forecast is 0.75 percent lower than the long-run average but enough for credit unions to grow net worth faster than assets. The forecast shows a credit union net worth ratio of 11.2 percent by year-end, in line with pre-COVID levels.
While credit unions have seen a rise in both delinquencies and net charge-offs over the past two years, the forecast for both metrics is for a modest decline in 2025 and eventually a return to pre-COVID levels, though it will take some time.