Puerto Rico’s economy faces uncertainty, further decline in ’21
After a significant decline stemming from measures adopted to control the COVID-19 pandemic, Puerto Rico’s economy faces further uncertainty as it is again expected to contract in 2021, although less dramatically, according to a projected scenario from economic consulting firm Estudios Técnicos.
The firm’s base scenario reflects an economic contraction of 0.9% in 2021, a relative improvement over 2020, where real GNP is estimated to have contracted by 4.4%. That estimate for 2021 incorporates the recent approval of a second economic stimulus package of $908 billion.
According to economist Juan Castañer, from Estudios Técnicos’ Division of Analysis and Economic Policy, it is not unreasonable to expect Puerto Rico to receive about $4 billion to $5 billion in additional federal aid during 2021.
The second half of the calendar year is projected to experience a better economic performance than the first half, if a reduction in COVID-19 transmission is achieved in the first half.
The pandemic has had negative impacts that will be with Puerto Rico well beyond 2021, including the permanent closure of many small businesses, the estimated loss of some 100,000 jobs, and greater concentration in the structure of the retail market and services markets.
If economic projections are difficult at all times, in a year where there is so much uncertainty, the difficulty is much greater, said Castañer.
Uncertainty arises from a number of sources: the difficulties President Biden will face in a GOP controlled US Senate; the impact of the coronavirus vaccine; the performance of the US economy; the speed with which Community Development Block Grant (CDBG) Program funds are invested in Puerto Rico; global events; and what the new composition of the Financial Oversight and Management Board for Puerto Rico means to the economy.
That’s why Castañer advocates instead for examining potential scenarios.
For instance, President Biden has laid out an ambitious aid plan for Puerto Rico in his government platform that, if implemented, could have a positive impact on the 2021 economy and over the next three years. How much of a priority will Puerto Rico be for the Biden administration and its ability to move its proposals in Congress will determine that possibility and what can be expected in 2021.
What domestic events or factors could affect the Puerto Rico economy in 2021?
Locally, an incoming administration always undergoes a learning curve that impacts economic activity, according to the report.
Gov. Pedro Pierluisi’s administration has the advantage of having experienced people in the key government agencies that directly impact economic activity: Treasury Department (Francisco Parés), Department of Economic Development and Commerce (Manuel Cidre), The Central Office of Recovery, Reconstruction and Resiliency (COR3, in Spanish) (Manuel Laboy), Housing Department (William Rodríguez).
This suggests that there is a possibility of accelerating the disbursement of CDBG-DR and Federal Emergency Management Agency funds, through the Housing Department and COR3 respectively, and that measures that stimulate economic activity may be rapidly implemented.
As of December 2020, out of $60 billion allocated for reconstruction after Hurricane María, $39 billion have been committed, but only just under $18 billion have been disbursed.
The COVID-19 pandemic, and how it progresses or is controlled, is possibly the decisive factor in terms of economic forecasts. This will determine the fate of executive orders that have imposed limits on economic activity, greatly affecting sectors such as restaurants, cafes, hotels, and paradors.
The manufacturing and agro-industrial sectors have had no severe impacts. Tourism is the most affected economic sector, not just by local executive orders, but by considerations related to restrictions in other jurisdictions; for example, restrictions imposed on cruise ship travel.
The consensus is that the tourism industry will not return to its pre-COVID position until 2023, the report states.