Reconstruction investments should push Puerto Rico’s economy to 2.0% growth in ’22
After a year of stabilization in the labor market and some economic sectors’ recovery following the dislocation caused by the COVID-19 pandemic, it is possible to expect a moderate economic growth of 2.0% by the end of fiscal year 2022, according to economic analysis firm Estudios Técnicos Inc.
“The favorable performance of the Puerto Rico economy in 2021 was largely influenced by the disbursement of federal stimulus funds to offset individuals’ loss of income and to retain jobs. These funds supported private consumption, fostered growth in key areas such as business and tourism, and helped stabilize the labor market,” said Graham Castillo, president of Estudios Técnicos.
“However, the expiration of the federal stimulus programs supposes a normalization in economic activity to pre-pandemic levels in the short term. Hence, the importance of gradually starting to disburse federal reconstruction funds to continue supporting the pace of economic activity that the island has experienced during the last year,” he said.
Estudios Técnicos Inc. anticipates economic growth of 2.0% at constant prices at the close of fiscal year 2022 and 1.1% in fiscal year 2023.
Although the disbursement of recovery and reconstruction funds will be instrumental to reactivate investment under construction and promoting job creation, a slowdown in economic growth can be expected by fiscal 2023, he said.
Leslie Adames, Director of the firm’s Economic Policy and Analysis Division, explained that the upward trend in inflation, the effectiveness with which the government manages the spike in infections with the coronavirus Omicron variant, and the expected increase in interest rates by the Federal Reserve, are risk factors that will affect consumption and investment in the short term.
“Many countries have again begun to prohibit the entry of tourists due to the rebound in cases of infection with the Omicron variant, something that could continue to favor local tourism and commercial activity to the extent that more restrictive measures are not implemented locally,” said Adames.
“However, the uncertainty surrounding the approval of new stimuli by the federal government and the erosion in consumer purchasing power due to the upturn in inflation will affect growth in private consumption,” he said.
Meanwhile, José Joaquín Villamil, founder and Chairman of Estudios Técnicos, added that “it’s important for Puerto Rico not to depend solely on the injection of federal funds to promote economic growth.”
“A medium and long-term economic development plan must be articulated that allows, among other things, to promote the development of human capital, the creation of domestic capital, promote SMEs, and design an industrial policy that allows creating linkages between multinational companies and local companies,” he said.
“Although there has been progress on the issue of debt, much remains to be done to transform the economy and achieve sustained growth of the economy in the medium and long term that promotes a better quality of life for all,” said Villamil.