Puerto Rico Economic Pulse ©

December 2015: What if Questions for the PR Economy

Great expectations amidst irreconcilable conflicts

As 2015 nears its end and a new year is about to start, it is time for reflection. The fundamental structure of the PR economy is changing. While the contribution of services to output is on the rise, investment and productivity remain flat or even declining, wealth is not accumulating, and growth and inflation continue declining. Meanwhile, globalization has increased co-dependence in the global economy: a rising number of countries can influence the world’s economic performance and its financial stability. With no investment nor prevention of outward migration, the PR economy is in the middle of a “lost decade”. Puerto Rico struggles with slow to negative growth, a sizeable external debt, capital outflows and lack of badly needed investment. Unfavorable demographics, inflexible labor markets, and a rising outward migration pose the biggest threats to our economy. The shortcut to recovery requires orderly debt restructuring and investments faster than expected. The PR economy is weak with a continued trade-off between sustained growth and debt deflation spiral. What will it take for PR to regain economic growth? What if…?

Puerto Rico Compass ©

Q4 2015: No End Yet for PR’s Fiscal Crisis

How this impacts 4Q-2015 economic indicators

Several bold events occurred this quarter in Puerto Rico and the US. In October, the US Department of Treasury presented a Roadmap for Congressional Action, suggesting key measures to deal with PR’s fiscal crisis. At the end of the year and after several public hearings, Congress could not reach an agreement regarding Chapter 9, a federal fiscal control board, Medicaid funds parity for PR or other lifesavers such as the Earned Income Tax Credit or a Child Tax Credit for Puerto Rican households. Locally, the administration was dealing with liquidity strains and submitted several proposals to solve the problem. However, it appears that without federal assistance, the internal actions will fall short. The net effect of this situation is widespread pessimism and uncertainty. This current issue analyzes how these events have impacted economic indicators during 4Q 2015 and what to expect in the near future.