By Ray Birch
WASHINGTON—The economic outlook for 2025 has improved, and credit unions should prepare for a more stable environment than previously expected, according to a new third-quarter forecast from America’s Credit Unions.
The association now sees a lower risk of recession and steady, if unspectacular, growth ahead—along with stronger-than-anticipated performance in key areas of the credit union business.
“We’re in a better place than we were three months ago,” said Curt Long, VP of data and research and chief economist at America’s Credit Unions. “Our baseline forecast for GDP growth in 2025 has increased from 0.5% to 1%. While that’s still not a booming economy, it signals a modest but meaningful improvement.”
Recession Risk Falls, Stability Rises
One of the most encouraging shifts in the outlook is a reduced risk of recession. The association now pegs the chances of a recession through the end of 2025 at 40%, down from 60% earlier this year.
“That’s a significant improvement and reflects a general stabilization in economic conditions,” Long noted. “It’s not just one factor—it’s a combination of stronger market sentiment, moderating inflation pressures, and more resilience in employment and consumer spending.”
While tariffs and global trade tensions had previously cast a shadow over the outlook, Long said the rollback of some tariff threats and better-than-expected stock market performance have contributed to the improved sentiment.
Unemployment remains low, hovering near 4%, which further supports the forecast for slow but steady growth.
“It’s not a booming economy, but it’s on more solid footing than we thought it might be,” Long said.
Fewer Fed Rate Cuts On The Horizon
Because the outlook has improved, the group is now forecasting fewer interest rate cuts by the Federal Reserve over the next two years. Long said the revised projection includes just one rate cut in 2025 and three in 2026—down from a previous expectation of two cuts in 2025 and five in 2026.
“The better the economy does, the less reason there is for the Fed to act aggressively,” Long explained. “That could mean borrowing costs stay higher for longer, but it also means the Fed sees less urgency to stimulate the economy.”
Curt Long
Stronger Loan Growth, Especially in Housing
On the credit union front, Long said early data from 2025 point to surprising strength in loan growth—particularly in the mortgage market.
“First-quarter call report data show stronger loan growth than we expected,” he said. “Mortgage lending was especially robust, suggesting that homeowners who had been sitting on the sidelines with 3% mortgage rates are starting to return to the market.”
Long said that increase in housing activity was supported by a pickup in home listings and broader gauges of purchase activity turning positive in the second quarter.
“It looks like people are finally getting tired of waiting—and that’s good news for credit unions active in home lending,” he added.
Delinquencies Drop, Earnings Outlook Improves
Another encouraging sign came from a sharp drop in delinquency rates in the first quarter. Although delinquencies typically fall early in the year, Long said the drop this year was “especially significant.”
“Compared to the same period last year, delinquency rates were basically flat, which is a notable improvement given the steady rise we’d been seeing over the past year,” he said.
As a result, the association has raised its forecast for credit union earnings in 2025, projecting return on assets of about 55 basis points—roughly in line with the first quarter and recent historical averages.
“Fifty-five basis points isn’t a huge number by historical standards, but it’s stable and stronger than we forecasted three months ago,” Long said.
Final Takeaway: Be Prepared, But Be Encouraged
While the year ahead still presents challenges, credit unions can approach the rest of 2025 with more confidence than earlier in the year, Long concluded.
“There are still headwinds, but the chance of a major downturn has eased. Credit unions should continue to prepare prudently, but the outlook is certainly more encouraging than it was.”