Savannah Chamber

15 Financial institutions are weathering the economic slowdown well, but we expect credit problems will continue to worsen in 2026. While we do not expect a wave of bank failures, banks with high exposure to commercial real estate loans or with large holdings of commercial mortgagebacked securities bear watching. In 2026, we believe the Fed's cuts in short-term policy interest rates will help. The yield curve will steepen, which increas- es financial institutions' opportunity to profit from borrowing short and lending long. Demographic trends such as above- average population growth will help, too. We believe a large drop in home prices is unlikely, but we expect home prices to drop in the coming year. Fortunately, not that many people owe more on their mortgages than their homes are worth. The downturn in commercial real estate markets —sharper in locations with the highest vacancy rates— is the main downside risk to Georgia's banking industry. High long-term interest rates and high vacancy rates could crash commercial real estate prices and the value of commercial mortgage-backed securities. Although that is unlikely, it could cause some regional and community banks to fail, or merge with stronger institutions. We project modest growth in demand for many types of loans, which will increase banks' profits. Households' credit scores are decent now but will deteriorate as the economy slows. Losses on loans will increase although we do not ex- pect banks to tighten lending standards much more in 2026. Higher consumer spending and slower growth in personal income will support some growth of revolving credit to households. More auto loans will add to the bottom line, too. Less positively, mortgage origination and refinancings will remain depressed. Manufacturing As uncertainties surrounding tariffs and trade policies lessen, we expect a manufacturing recovery to begin in 2026. Geor- gia's largest manufacturing industry is food processing, which will do well thanks to new activity at Pilgrim's, King's Hawai- ian, Walmart's dairy facility, FreshRealm, Yakult, PepsiCo Beverages, Jack Link's, and Anheuser-Busch, among others. Vehicle and vehicle parts manufacturing industries will benefit from slightly higher domestic demand. Supply chain prob- lems exacerbated by the trade war are expected to diminish, which will enable the industry to increase production to meet consumers' pent-up demand for popular models. Political pressures that encourage foreign manufacturers to invest more in U.S. production facilities and to buy automotive parts from American manufacturers will help as will the many assembly plants in the Southeast. Georgia is developing as nexus of the electric vehicle manufacturing industry. Hyundai Motor Group and LG Energy Solu- tions' decision to invest over $5.5 billion in Bryan County at their first fully dedicated electric vehicle and battery manu- facturing facility will create 8,100 jobs. Since then, they've invested an additional $2 billion, and now this joint venture will create 8,500 jobs over the next eight years and will produce 300,000 electric vehicles annually. Effective economic development policies as well as rising wages and production costs in China—and elsewhere—are factors that support Georgia's manufacturing sector. Concerns about trade policies, product quality and management of the risks associated with increasingly complex supply chains also make manufacturing in Georgia more attractive. Additional helpful factors include a superior transportation, logistics, and distribution infrastructure, low costs of doing business, a favorable tax structure, highly ranked colleges and universities, excellent work-force training programs, and extremely competitive economic development incentives. State and Local Government Although the economic slowdown will curb growth in state and local government revenue collections, inflation will help prevent revenues from declining. In fact, local governments' revenue collections will increase due to the lagged effects of the recent housing boom on property tax digests. In many jurisdictions, local government employment will increase, but state government employment will decline so we expect tight budgets for the next two fiscal years. In addition, the federal government will shift financial support for some large jointly funded programs to the states. In contrast, local governments

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