Economists warn of stalled growth, uncertainty for Puerto Rico
Puerto Rico’s economic outlook remains clouded by uncertainty and sluggish growth, according to leading local economists who warn that external forces — particularly shifting U.S. federal policies — continue to weigh heavily on the island as it heads into 2026.
José Joaquín Villamil, chairman and CEO of Estudios Técnicos Inc., said assessing the island’s trajectory is unusually difficult given Puerto Rico’s vulnerability to policies outside its control. He pointed specifically to the economic actions of the Trump administration, which he described as volatile and a major source of uncertainty.
“We are in an environment of great uncertainty looking ahead to 2026,” Villamil said.
Under the most likely scenario, he said, Puerto Rico’s economy next year will look much like it did in 2025, with little movement in growth, employment or overall activity.
Villamil expects 2025 to close with economic growth between 0% and 1%, a range he characterized as weak. Although activity often picks up during the holiday season, he said the economy has shown no real signs of reactivation this year.
“This is not a good year,” he said, noting that meaningful progress would require growth of 3% to 4%.
Villamil emphasized longer-term concerns. Since around 2000, Puerto Rico’s economy has oscillated between marginal growth and contraction, mostly within a band of -1% to 2%.
“It is an economy that is not doing well,” he said, noting that the island has not experienced sustained growth of 4% or 5% in many years.
He said some sectors, including tourism and manufacturing, continue to expand but are driven largely by external demand. Manufacturing depends heavily on exports, and tourism is fueled mostly — though not entirely — by visitors from outside Puerto Rico.
Estudios Técnicos projects gross national product growth of about 1% for 2025 and close to 0% for 2026, in line with estimates from the Puerto Rico Planning Board.
Tariffs, inflation and policy
Villamil also pointed to tariffs as a factor lifting prices for food and durable goods. Retail sales, he said, appear to have stagnated and may be declining due to inflation, contributing to a shift toward lower-priced options.
“The problem is that there is so much uncertainty due to Trump’s policies,” Villamil said, arguing that tariffs and changes to federal funding mechanisms have been largely anti-growth. He expressed skepticism that federal spending through agencies such as the Federal Emergency Management Agency or in health and social welfare programs will rise meaningfully in 2026. As a result, Estudios Técnicos projects growth of 0% or slightly negative next year.
Economist Heriberto Martínez, executive director of the Liga de Cooperativas, echoed those concerns, saying the outlook “does not look good” at either the macroeconomic or microeconomic level.
He said rising prices are already weighing on household consumption, a key component of economic growth.
“Price levels are literally eroding the purchasing power of working families,” Martínez said, citing higher costs for energy, food and other essentials. These pressures, he added, are also squeezing small and midsize businesses, which face rising input costs without clear short-term policy measures to ease the burden.
Martínez said uncertainty surrounds a potential tax reform, with little clarity on whether changes would reduce pressure on working families and small businesses. He also does not expect significant gains from exports because of confusion surrounding U.S. tariffs and Puerto Rico’s reliance on imported inputs for its pharmaceutical industry. About 30% of those inputs, he said, come from abroad — mainly Ireland — leaving the sector vulnerable to trade disruptions.
With limited prospects for export-led growth, Martínez said public spending becomes even more important. But he warned that the Financial Oversight and Management Board’s push for budget tightening, coupled with uncertainty around federal funds, could further restrict economic activity.
Throughout 2025, he said, working families and small businesses have faced energy instability, a high cost of living, excise taxes feeding into consumer prices and rising food costs. Private-sector investment remains scarce, leaving many households experiencing what he described as a microeconomic contraction.
On the macroeconomic side, Martínez said high-profile events such as Bad Bunny’s residency boosted tourism, private investment and visitor spending this year. But while those factors may have supported aggregate growth, they have not translated into broad relief for families.
“As we head into 2026,” Martínez said, “what people are feeling is not positive — a shrinking of the economy and a period of tough financial planning at the individual level.”
