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December 28, 2020 Economic Forecast

Vaccine, federal stimulus needed for economic recovery

Photo | Contributed


Q&A talks with John R. Ciulla, the chairman, president and CEO of Waterbury-based Webster Bank.

(Editor's note: In the time since Ciulla answered HBJ's questions about 2021, the FDA approved several COVID-19 vaccines, and just recently, President Donald Trump signed a $2.3 trillion stimulus bill into law)

Many banks this past year granted payment deferrals to borrowers hurt by the COVID-19 pandemic. The demand for those accommodations subsided during the summer, though sectors like hotels and restaurants have continued to struggle. Do you see things further stabilizing in 2021?

We, and our industry peers, have been pleased with the resiliency of our business and consumer customers, as evidenced by sharp declines in loan-modification and payment-deferral requests.

We hope to see things continue to stabilize throughout 2021, particularly with the prospects of an effective vaccine being broadly distributed in the first part of the year.

Two things will drive the ultimate path of the recovery.

The first and obvious driver is the path and duration of the virus and its impact on economic fundamentals, and consumer and business confidence.

The second driver, which will offset much of the downside risk, is further fiscal and monetary stimulus, including additional stimulus payments, enhanced unemployment benefits and another round of government lending programs.

We would like to see that additional monetary stimulus targeted at those individuals and business sectors that demonstrate the greatest need.

How might another significant round of federal stimulus help banks and their customers?

An agreement on a significant stimulus package in 2021 could certainly boost the economy, especially if it includes targeted monetary relief for those who need it most. For example, there is bipartisan support for extending the PPP, which would allow banks to help struggling small business customers survive the current downturn.

Congress is also considering another round of Economic Impact Payments, which could help individual consumers meet their financial obligations and spur the economy. Any improvement in the overall economy would assist all businesses, including banks.

Where do you see interest rates going in 2021? How will that impact commercial borrowing? What about residential borrowing?

We see a prolonged period of very low short-term interest rates, certainly during the next 12 to 24 months. We believe that low interest rates and outmigration from major metro areas brought on by the pandemic (New York City to Fairfield County, for example) will spur additional mortgage and other consumer loan demand.

With respect to commercial borrowing, while interest rates make borrowing attractive, the health of the economy and business confidence will be the real driver of loan demand and activity.

How do you think the CT economy will perform in 2021?

Our base case is that the Connecticut economy will grow modestly but steadily in 2021 as we emerge from the pandemic.

The wild cards, once again, are the duration and path of the virus, including the distribution of a viable vaccine, and the timing, size and targeting of additional fiscal stimulus into the economy.

How has the pandemic impacted your thinking about your branch network?

At the onset of the pandemic, visits to banking centers were reduced materially and limited only to necessary banking activity. Recently, we have started to see higher branch traffic (not to pre-pandemic levels, however), and a shift back to additional in-person meetings for routine transactions.

As customers are growing more confident in their online skills, and banks like Webster continue to offer new and reliable digitized banking services and products, we will continue to see an increase in digitally-active households as consumers seek access to their account information 24/7.

However, our banking centers remain a critical channel through which we service our consumer and business clients.

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