By The Star Staff
Puerto Rico’s economic outlook for 2025 remains uncertain, a report from the Financial Oversight and Management Board says.
The June 2024 Commonwealth Fiscal Plan (CFP) of Puerto Rico projected real gross national product (GNP) to grow by 1.0% in fiscal year (FY) 2024, down from 1.6% in FY2023, before a contraction of -0.8% in FY2025.
While official statistics from the Government of Puerto Rico on real GNP performance are not yet available for FY2024, other proxies such as the Economic Activity Index (EAI), suggest this contraction may have come earlier and started in the second half of FY2024, the report states.
Starting in November 2023, the EAI showed six consecutive months of month-over-month contraction, with the April 2024 reading being 2.8% below October 2023’s peak and the lowest point since January 2023. Despite showing a slight rebound over the last two months of FY2024, the January to June FY2024 period weakened by 0.2% when compared to the same period of FY2023, the report says.
“The outlook for FY2025 remains uncertain, and it is too early to tell whether the economic contraction projected by the June 2024 CFP began earlier than anticipated or the underlying trends have shifted over the last few months of FY2024,” the report says.
Puerto Rico’s year-over-year inflation rate has decreased from its peak of 6.6% in the first quarter of FY2023 to 2.4% in the fourth quarter of FY2024. That behavior mirrors the trend observed in the mainland U.S., where inflation fell from 6.3% to 3.4% over the same period.
Employment in Puerto Rico increased by around 20,000 jobs in June 2024 compared to June 2023, reflecting a year-over-year growth rate of 2.2%. Similarly, employment in the mainland U.S. increased by some 1.7% in the same period.
Puerto Rico’s labor force participation rate, nonetheless, remains significantly lower than that of the U.S. mainland. Despite improvements, Puerto Rico’s labor force participation rate averaged 43.9% in Q4 FY2024, compared to the mainland rate of 62.6% during the same period.
Structural challenges in Puerto Rico, such as limited access to child and elder care, regional inequities in job availability and extended time to complete advanced degrees contribute to this gap.
The unemployment rate has stopped declining, leveling at around 5.8% in FY2024. Furthermore, the speed at which federal disaster relief funds are being deployed is lagging behind forecasts, and mid-to-long-term growth is still expected to slow as federal disaster funding ramps down.
The unprecedented influx of federal funds in recent years may be masking underlying weaknesses in the Puerto Rico economy. In recent years, Puerto Rico has received an unprecedented influx of federal funds and recovery packages of over $120 billion, equivalent to approximately 145% of the 2023 GNP, which has resulted in higher tax collections.
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