Fiscal board says island economy could be in stagnation

By THE STAR STAFF

Puerto Rico’s most recent economic indicators may be pointing toward stagnation, according to Financial Oversight and Management Board Executive Director Robert Mujica, who spoke at an event earlier this week.

The Puerto Rico Planning Board projects that real gross national product (GNP) will grow by 0.4% this calendar year, while the Department of Economic Development and Commerce’s economic activity index suggests 0.3% growth for the first quarter of fiscal year 2026, which ended on Sept. 30, 2025, Mujica said during the oversight board’s 2026 Economic Forecast Symposium on Tuesday.

Mujica noted that nearly all of Puerto Rico’s industrial sectors are expected to see slowing growth as federal funding continues to diminish. Tax revenues have been mostly flat and are forecast to fall in 2026 compared with 2024 and 2025, though collections still exceed the board’s earlier estimates.

He emphasized that last year brought swift policy shifts in Washington -- from tariff changes to cuts in agency spending. Those rapid changes, along with evolving conditions in inflation, interest rates and global trade, make long‑term planning increasingly critical for Puerto Rico, especially as the extraordinary federal support the island has depended on winds down.

Mujica said the central challenge now is determining how Puerto Rico can achieve a more durable path to economic growth.

Puerto Rico is expected to enter a period of continuous GNP contraction beginning this year and lasting through 2031, according to Leslie Adames, director of the analysis and political economy division at Estudios Técnicos.

Adames presented a baseline scenario showing real GNP shrinking by 0.9% in 2026, followed by further declines of 1.0% in 2027, 1.4% in 2028, 1.5% in 2029, 1.7% in 2030 and 2.0% in 2031.

He attributed this outlook to several factors, including slower consumption growth, ongoing inflationary pressures, and the possibility of lower Medicaid funding for the island starting in 2028.

Puerto Rico must overhaul its economic model or risk facing the same concerns year after year, Adames warned.

He added that the island requires a coherent and comprehensive economic development strategy -- one capable of addressing issues such as shortages in skilled labor. More than 30% of the workforce has only a high school education or less, he noted, which poses obstacles as Puerto Rico seeks to expand industries such as pharmaceuticals, medical devices and information technology, all of which demand more specialized expertise. Meanwhile, automation continues to replace lower‑skilled jobs.