By The Star Staff
The Planning Board (JP by its Spanish initials) projects sustained growth of Puerto Rico’s economy of 2.8% and 1.4% for fiscal years (FY) 2024 and 2025, respectively, JP Chairman Julio Lassús Ruiz said Monday.
“The projections are based, among other variables, on the slowdown in inflation and the increase in the disbursement of federal funds,” Lassús Ruiz said in a written statement.
The planner noted that “among the main variables of the projections are funds for reconstruction, the significant reduction of inflation, and credits for work and dependent children.”
It is essential to mention that any economic projection realization must be built with appropriate statistical instruments,” Lassús Ruiz said, adding that the JP uses an econometric model called the Dynamic Econometric Model of the Economy of Puerto Rico.
Different economic assumptions are incorporated into the model to explain the behavior of the projections. Among the main assumptions are the following exogenous variables: economic growth in the United States, oil prices, the level of investment in construction, investment in machinery and equipment, the amount of federal transfers to individuals, the size of the population, and the world economy, he said.
The sources of information are fiscal plans published by the Financial Oversight and Management Board, Congressional Budget Office, U.S. Census Bureau, International Monetary Fund, and the U.S. Office of Energy. In addition, the aggregates of Puerto Rico’s economy are incorporated according to the data from the 2023 social accounts produced by the JP.
Economic growth of 2.8% is projected in the base case for FY 2024, positively impacted by federal Community Development Block Grant (CDBG) funds for reconstruction. Those federal disbursements are expected to grow 21.2% in the current fiscal year, reaching $1.858 billion, $326 million above the previous fiscal year 2023. In addition, a significant reduction in inflation is expected, which will reach a growth of 2%, after having increased 3.3% in FY 2023.
“Other factors that have contributed positively to the economy have been the credits from the ARPA [American Recovery Plan Act] Law, work credits and credit for dependent children,” Lassús Ruiz said.
Likewise, he said, “the projection for fiscal year 2025 is a growth of 1.4 percent in the base scenario.”
“This projection is supported by increased federal disbursements in CDBG funds totaling $2 billion,” the official said. “This would represent an increase of 10.6 percent, or $196 million over fiscal year 2024. Another indicator contributing to growth in fiscal year 2025 is a slowing inflation [rate] of 1.4 percent over fiscal year 2024.”
The JP always measures two alternative scenarios to the base scenario that explain any eventuality in the base forecast. The scenarios are optimistic and pessimistic. The optimistic scenario is more positive in terms of the economy’s performance. In the pessimistic scenario, performance is smaller or negative at the base level.
The optimistic scenario for FYs 2024 and 2025 projects growth of 3.2% and 2.4%, respectively. The pessimistic scenario projects increases of 2.4% in FY 2024 and 0.3% in FY 2025.
Lassus Ruiz also noted that Puerto Rico’s economy, measured by the gross domestic product (GDP) at constant prices, increased 0.7% in FY 2023 compared to FY 2022.
The JP chairman noted that “this growth is mainly attributed to an increase in exports of goods and services of 12.7 percent, imports of goods and services of 5.6 percent, personal consumption expenditures 3.2 percent, total domestic fixed capital investment 2.8 percent and government consumption expenditures 0.3 percent.”
Constant GDP estimates for FYs 2021 and 2022 were revised, for growth of 1.4% and 3.8%, respectively. At current prices, GDP in FY 2023 rose 3.9%. The revisions to the current GDP estimates for FYs 2021 and 2022 were 7% and 4.1%, respectively.
In FY 2023, personal consumption expenditures at current prices increased by 6.3%. Durable and nondurable goods have the largest share in personal consumption expenditures, with 58.9% of the total. At constant prices, personal consumption expenditures on household operation, clothes and accessories, and medical and funeral services had the greatest impact on the total expenditures. Personal consumption expenditures accounted for 85.1% of real domestic demand in FY 2023, confirming the category’s crucial role as a driver of the economy.