Q1 2015: Is Consumption Puerto Rico’s Lifeline?

A review of economic indices Q1-2015

Recently released data showed that real GNP in Puerto Rico fell -0.9% in fiscal year 2014. This result was more or less in line with the consensus forecast, and it represents a continuation of a recession, which started in 2007 and has lasted now 8 years. The underlying details of the six quarterly economic indices for Q1-2015 were mixed, however. The good news is that growth in the leading index reflects the impact of cheap oil prices with lower gasoline and electricity prices expected to continue in coming months. In addition, consumption of goods and services was less negative than the previous quarter. On the other hand, construction continued in negative territory with -7.6 percent on a year-ago basis. Banking and manufacturing have not improved and continue in negative territory. Overall, the economic indices for Q1 this year reflect the poor performance of the economy and the uncertainty generated by an upcoming overhaul of PR’s tax system with a proposed VAT tax of 16%. At time of publishing this issue, the Legislature had defeated this bill.

March 1, 2015 By H. Calero Consulting Group Puerto Rico Economic Pulse© Economy • H Calero Consulting Group • H. Calero • Newsletter • Puerto Rico • Puerto Rico Economic Pulse© 0 Comments

March 2015: Oil & PR Liquidity: A Dangerous Strategy

The risks to pull out from the near term abyss are huge

The Government’s delicate financial position has deteriorated significantly since January 2015. Delays in approving a tax increase on oil imports—against which the PR Highway and Transportation Authority (PRHTA) would issue bonds to service its debt with the Government Development Bank (GDB)—have led to onerous terms for the Commonwealth. Furthermore, the storm set-off by the proposed tax reform, unrelated to the tax hike on oil-related products, has increased uncertainty across the board and possibly tilted the Island’s fragile socioeconomic balance in the wrong direction. Unfortunately, the problem is even more delicate. Recent revisions to employment data meant that economic activity has been even slower than initially thought, perhaps resulting in yet another contraction in GNP. Inflation entered negative territory with the General Fund having at one point only $10 million in its coffers. This issue analyzes the economic and financial risks this is creating.