PR economy loses momentum as experts warn of another year of stagnation
By THE STAR STAFF
Puerto Rico’s economic recovery is showing signs of fatigue, with economists warning that the island is entering 2027 facing an increasingly difficult mix of sluggish growth, rising costs and long-term demographic challenges despite continued strength in tourism and pharmaceutical manufacturing.
The assessment emerged during the Economic Forecast Symposium hosted this week by the Financial Oversight and Management Board, where economists from the Federal Reserve Bank of New York, Moody’s Analytics, V2A Consulting and Estudios Técnicos offered differing forecasts but largely agreed that Puerto Rico’s economy lacks a strong engine for sustained expansion.
Joelle Scally, an economic policy adviser at the Federal Reserve Bank of New York, said economic activity has remained virtually unchanged for the past two years. The labor market has held up relatively well and tourism continues to outperform many sectors, but rising credit-card delinquencies suggest that household finances are beginning to come under pressure. Aging and population loss remain among the most significant long-term obstacles to economic growth, she said.
Puerto Rico’s economic challenges are increasingly tied to demographic trends. The New York Fed noted that roughly one-third of Puerto Ricans who were young adults in 2010 now reside in the continental United States, reducing workforce growth and weakening the island’s long-term economic prospects.
While other presenters at Wednesday’s forum focused on slow growth, Xavier Divi and the team at V2A Consulting argued that Puerto Rico is already experiencing a period of economic stagnation. Their presentation showed that the island’s Economic Activity Index in August 2026 was essentially unchanged from August 2023, while payroll employment has remained near 2024 levels.
The firm described an economy increasingly squeezed by inflation and high utility costs. Commercial electricity rates are more than 30% higher than they were in 2019, while residential rates have risen more than 20%. V2A estimated that a 20% increase in electricity prices carries an annual economic cost of roughly $935 million and significantly reduces business profitability, particularly in energy-intensive industries.
Even so, several sectors continue to provide support. V2A highlighted strong tourism performance, including growth in hotel demand and cruise traffic, as well as manufacturing expansion driven by reshoring trends and major pharmaceutical investments. The firm noted that companies including Eli Lilly and Amgen have announced billions of dollars in investment commitments in Puerto Rico in recent years.
Yet those gains may not be enough to counter mounting economic headwinds. V2A identified elevated oil prices, higher borrowing costs, trade-related pressures and uncertainty surrounding future federal healthcare funding as major risks heading into next year. Its conclusion was stark: absent an improvement in external conditions, Puerto Rico appears headed toward another year characterized by stagnation and inflation rather than robust growth.
Moody’s Analytics arrived at a similar conclusion, though with a slightly more optimistic forecast. Economist Gustavo Rojas Matute projected Puerto Rico’s real gross domestic product (GDP) growth at 0.3% in 2027 after an estimated 0.8% increase in 2026. The forecast assumes continued support from tourism and more than $2 billion in recently announced pharmaceutical and medical-device investments, but it also reflects the drag of high electricity prices, elevated interest rates and ongoing population decline.
The most pessimistic outlook came from Estudios Técnicos, which projected a 1.4% contraction in Puerto Rico’s real gross national product during fiscal year 2027. Its economists pointed to weakening consumer spending, slower gains in purchasing power, rising construction costs and uncertainty surrounding federal funding as factors likely to restrain economic activity. Real retail sales have already declined this year, with some of the sharpest drops occurring in discretionary categories such as restaurants and department stores.
At the same time, presenters emphasized Puerto Rico’s dependence on federal support. According to Estudios Técnicos, federal funds account for 44.5% of the commonwealth’s consolidated budget, with healthcare, education, housing and family services representing the largest beneficiaries. Potential federal spending reductions, particularly the anticipated Medicaid funding cliff in 2027, were repeatedly cited as major economic risks.
Economists nevertheless pointed to one significant source of opportunity: reconstruction spending. More than $41 billion in disaster-recovery funds remain undisbursed, creating a substantial potential pipeline of investment. Whether those dollars translate into stronger economic growth, however, will depend on the speed of project execution, permitting and the availability of labor and construction materials.
Taken together, the presentations portrayed an economy that continues to benefit from tourism, manufacturing investment and recovery funding but remains constrained by high energy costs, demographic decline and structural weaknesses. The consensus among forecasters was not one of imminent crisis, but of an economy struggling to gain momentum and facing another year in which growth is likely to be slow, uneven and increasingly difficult to sustain.
