The risks that Puerto Rico recovery is facing

Puerto Rico is not only recovering from Hurricane Maria, but from a long decade of stagnation. With the support of the FOMB the governor of Puerto Rico is carrying a fiscal plan and a set of structural reforms with goal to return to an accelerated growth path. This goal is achievable if PR is able to diversify its economy in the mid – long run.

In the short run, however, PR is facing some risks. The most important is the slowdown of the U.S. economy. By looking at the time series it seems that PR GDP growth has a strong dependency on the US GDP growth.

This figure shows that between 1980 and 2000 the GDP growth of Puerto Rico were very tied to the US GDP growth.

Puerto Rico: GDP vs USA GDP

In this sense, we can see an apparent positive relationship between bot economies.

Puerto Rico GDP vs USA GDP

There are two factors that may accelerate the slowdown of the U.S. economy. The first one is the government shutdown. The second one is an increase in the Fed Funds Rate. If the US is able to keep its GDP growth path the Fed may try to increase the FFR in the second or third quarter.

Another risk that PR is facing is a probable reduction of the federal funds is receiving. According to some news media, President Trump wants to end federal relief for Puerto Rico.

In any case, if Puerto Rico is not able to show positive results in the short run could continue to experience a massive exodus that will keep shrinking the workforce and the chances of recovery in the medium and long term.