Experts provide guarded outlook on island economy
- The San Juan Daily Star
- May 26
- 3 min read
By The Star Staff
At a recent economic symposium organized by the Financial Oversight and Management Board, Gustavo Rojas Matute, assistant director at Moody’s Analytics, provided a cautious outlook for Puerto Rico’s economy.
While the current economic state remains stable, a significant slowdown is anticipated in the near future. In his presentation, Rojas projected that real gross domestic product growth for fiscal year (FY) 2025 would decline sharply, dropping from 2.1% in FY 2024 to just 0.4% year-over-year. The slowdown is expected to persist, with growth forecasts ranging between 0.1% and 0.5% through FY 2030.
Rojas attributed the slowdown to the diminishing momentum from the initial fiscal injection of federal spending. As the effects of this stimulus wear off, economic growth is likely to stagnate. Puerto Rico’s economy is mainly driven by the construction, transportation, and leisure sectors, with tourism playing a significant role within the leisure sector. Despite the challenges, the unemployment rate is expected to remain relatively stable, averaging around 6% through FY 2030 -- a notable improvement from the 8-9% average seen in the previous decade.
Moody’s Analytics projects that federal funding for disaster relief, COVID-19 aid, and the Bipartisan Infrastructure Law in Puerto Rico will total $8.7 billion in FY 2026, with a cumulative disbursement of $44.3 billion over the FY 2026-FY 2035 period. However, Rojas cautioned that those projections depend on continued federal support; if this assistance decreases, Moody’s may need to revise its forecasts downward.
Joelle Scally, an economic policy adviser at the Federal Reserve Bank of New York, expressed optimism about Puerto Rico’s economic growth and population stabilization.
Scally highlighted several indicators of economic recovery, including the private sector reaching historically high levels, a decrease in foreclosures, an increase in residential property values, and a stabilization in population numbers attributed to strong economic conditions.
Data presented by Scally revealed that Puerto Rico’s economy has experienced gradual decline since 2005, experiencing further challenges following Hurricane Maria, the 2020 earthquakes, and the COVID-19 pandemic. However, recent years have shown signs of stabilization, as indicated by the island’s population figures, which have remained around 3.1 million after a post-2017 dip.
While acknowledging the potential impact of the positive economic indicators, Scally also emphasized the importance of continued growth and support to ensure long-term stability for Puerto Rico’s economy and population.
Sergio M. Marxuach of the Center for a New Economy expressed concerns regarding Puerto Rico’s fiscal stability as the island faces deep cuts in federal funding. With a proposed budget of $32.6 billion for fiscal year 2026, the island may see significant funding losses due to President Donald Trump’s executive orders and Department of Government Efficiency actions.
Marxuach noted that Puerto Rico has already lost some $800 million in federal funding, with $512 million of that amount specifically allocated for energy resilience projects. Potential future cuts may further impact essential programs such as climate initiatives, green energy projects, and unspent COVID-19 funds. Additional consequences could include public employee dismissals, contract cancellations, and grant terminations for non-governmental organizations and academic institutions.
Another potential concern lies in the U.S. government’s reconciliation bills process, which could lead to cuts in Medicaid and nutritional assistance program funding. Although this threat is not imminent for Puerto Rico, Marxuach warned that it could be applied to the commonwealth in the future.
The uncertainty surrounding Puerto Rico’s federal funding underscores the precarious nature of the island’s fiscal situation and highlights the need for sustainable solutions that prioritize long-term economic stability and growth, the experts said.
Economist José Joaquín Villamil focused on high housing costs and the island’s fragile financial status. With 46% of the government’s budget stemming from federal funding, Villamil emphasized the potential ramifications of anticipated federal cuts and the island’s reliance on the United States for 60% of its imports.
The impact of tariffs on major importers, such as Mexico and Canada, is expected to exacerbate inflation concerns for Puerto Rico. Villamil also questioned the effectiveness of Law 60’s incentive program, which has primarily benefited individuals who have created a maximum of five jobs, falling short of the intended economic boost.
Villamil predicted slow economic growth, with persistent migration challenges and housing inaccessibility issues continuing to hinder progress. While opportunities exist, the island’s financial weaknesses must be addressed, along with improving its physical and social infrastructure, he said.
Indeed, uncertainty is felt in many areas, and it is increasingly difficult for people to plan ahead. At such moments, tools that provide at least a little flexibility in financial management are especially important. For example, I first thought about services like DailyPay when I started looking for a way to access the money I earned a little earlier. In conditions of instability, even such small things can make a big difference.