The gross domestic product (GDP) of the European Union (EU) will contract by 7.4% in 2020, while EU unemployment will hit a high of 8.6% next year, based on projections shared during the European Network of Credit Unions (ENCU) November 10 webinar—The COVID-19 Crisis and the Role of Community Finance in Recovery.

ENCU is a World Council of Credit Unions’ entity comprised of credit union associations in eight European nations.

Those GDP and unemployment forecasts are just some of the harsh realities that figure to slow down the EU economy for at least the next two years.

“Nearly half of our member nations will not recover pre-pandemic GDP by the end of 2022,” said Laura Bardone, an economic forecaster at the EU Commission. “Countries with large tourism and service sectors will take longer to achieve a full recovery.”

Deficits are also set to hit record levels, as several EU nations face a 10% debt-to-GDP ratio. Unemployment is expected to stay above 8% in the EU through the year 2022.

Financial institutions prepare for challenges

While those economic indicators will trickle down to financial institutions, the EU banking sector as a whole is better prepared to handle this crisis due to lessons learned during the Great Recession.

“There is a very positive long-term trend in terms of asset quality.” said Mario Quagliariello, director of economic analysis and business at the European Banking Authority.

Quagliariello noted the non-performing loan (NPL) ratio for the entire EU banking sector currently stands at around 3%, while capital ratios remain stable and liquidity ratios have increased.

Credit unions must rise to the challenge

But credit unions should be prepared to face greater financial challenges next year, according to World Council President and CEO Brian Branch.

“We are concerned the real impact of COVID-19 has yet to come,” said Branch. “NPLs could rise to as low as 800 billion and to as high as 1.3 trillion euro in the coming years.”

Members of the EU Parliament Credit Union Interest Group (EUPCUIG), an informal group of MEPs created by ENCU to raise awareness about credit unions and microfinance, stressed the important role credit unions will play in overcoming the economic impacts of the pandemic.

“Now, more than ever, we need a truly human centered approach to finance and genuine financial inclusion,” said MEP Ryszard Czarnecki of Poland, who co-chairs of the EUPCUIG.

You can watch the webinar in its entirety on the World Council YouTube Channel.