Scotiabank: P.R. economy to grow 2.5% in FY '11

By : JOSÉ L. CARMONA | Caribbean Business
josec@caribbeanbusinesspr.com
Originally published: July 29, 2010 02:07 PM

Economists from Scotiabank Group in Canada say that the Puerto Rican economy is on the path toward “a dramatic turnaround and 2.5% growth for fiscal 2011.”

That optimistic outlook was presented in the Canadian bank’s July 23 Latin America Weekly Outlook report.

“The Puerto Rican economy has experienced a dramatic turnaround after three years of uninterrupted economic decline. Consumer spending and manufacturing activity are leading the way, underpinned by improving labor market conditions and an uptick in international trade,” the report reads.

The report, written by Scotiabank’s International Research Group headed by Pablo F.G. Bréard and collaborators Tuuli McCully, Estela Ramírez and Oscar Sánchez, noted the island’s nascent recovery is being supported by an “ambitious and aggressive” fiscal plan implemented by the Puerto Rico government backed by the federal government’s fiscal stabilization package instituted last year through the American Recovery & Reinvestment Act.

“Although the near term outlook for Puerto Rico will still be shaped by sizable disbursements from the government’s fiscal stabilization plan that are programmed to amount to $1.5 billion in the next six months, recent evidence already supports a successful implementation of the fiscal impulse,” the Scotiabank report said.

Having bottomed out back in February, value added within the island, as approximated by the economic activity index, increased by 0.8% quarter over quarter (not annualized and seasonally adjusted) so far in the second quarter with data up to May.

Fiscal 2011 started July 1.

“Although seasonally adjusted figures are not readily available, an advance in retail sales of over 13% on a yearly basis during the first quarter was significant. The improvement in spending indicators has come on the back of persistent employment gains, as over 18,000 jobs have been created since January,” the Scotiabank report said.

“Notwithstanding the surprising economic comeback, the most impressive performance has come out of the public sector balance, as government revenue for fiscal 2010 resulted over 2% larger than the previous year, having surpassed budgeted estimates for the second fiscal year in a row; after at least four years of overestimations.”

The Scotiabank Group economists said these recent developments continue to support their February 2010 estimation of a 2.5% economic expansion during fiscal 2011, which would represent the first yearly expansion of the island’s economy in five years.

The Puerto Rico Planning Board is predicting that the island economy will grow by 0.7% during fiscal 2011, but many private economists expect another year of contraction.