Think tank: Modest 2% economic growth to slow in FY23
By The Star Staff
Following the stabilization of the labor market and the recovery of some economic sectors after the dislocation caused by the COVID-19 pandemic, Puerto Rico may expect a moderate economic growth of 2% by the end of fiscal year 2022, according to Estudios Técnicos Inc. (ETI).
“The favorable performance of the Puerto Rico economy in 2021 was largely influenced by the disbursement of federal stimulus funds to offset individuals’ loss of income and to retain jobs. These funds supported private consumption, fostered growth in key areas such as business and tourism, and helped stabilize the labor market,” said Graham Castillo, president of ETI, in a statement issued late last week. “However, the expiration of the federal stimulus programs supposes a normalization in economic activity to pre-pandemic levels in the short term. Hence, the importance of gradually starting to disburse federal reconstruction funds to continue supporting the pace of economic activity that the island has experienced during the last year.”
ETI anticipates economic growth of 2% at constant prices at the close of fiscal year 2022, and 1.1% in fiscal year 2023. Castillo highlighted that, although the disbursement of recovery and reconstruction funds will be instrumental in reactivating investment under construction and promoting job creation, a slowdown in economic growth can be expected by fiscal 2023.
Leslie Adames, director of ETI’s Economic Policy and Analysis Division, noted that the upward trend in inflation, the effectiveness with which the government manages the spike in infections with the coronavirus omicron variant, and the expected increase in interest rates by the Federal Reserve, are risk factors that will affect consumption and investment in the short term.
“Many countries have again begun to prohibit the entry of tourists due to the rebound in cases of infection with the omicron variant, something that could continue to favor local tourism and commercial activity to the extent that more restrictive measures are not implemented in the Isla,” Adames said. “However, the uncertainty surrounding the approval of new stimuli by the federal government and the erosion in consumer purchasing power due to the upturn in inflation will affect growth in private consumption.”
José Joaquín Villamil, founder and chairman of the ETI board of directors, commented that “it is important for Puerto Rico not to depend solely on the injection of federal funds to promote economic growth.”
A medium and long-term economic development plan must be articulated that allows, among other things, the promotion of the development of human capital, the creation of domestic capital, promotion of SMEs, and the design of an industrial policy that allows creating linkages between multinational companies and local companies.”
“Although there has been progress on the issue of debt, much remains to be done to transform the economy and achieve sustained growth of the economy in the medium and long term that promotes a better quality of life for all,” Villamil said.