Puerto Rico’s economy has been recovering from the shock of natural disasters and the COVID-19 pandemic, but growth has recently slowed. The long-term impact of recent and potential shifts in federal policy and funding, meanwhile, remains uncertain.
To gain more perspective on where the economy is heading, the Oversight Board hosted its inaugural Economic Forecasting Symposium on May 21, 2025. This annual event, bringing together leading economists from both the mainland U.S. and Puerto Rico, gave the Government more insight and will become part of a reformed fiscal and budget planning process.
Ben Herzon of S&P Global Market Intelligence, Joelle Scally of the Federal Reserve Bank of New York, Gustavo Rojas-Matute of Moody’s Analytics, as well as local economists Sergio Marxuach of the Center for a New Economy, University of Puerto Rico professor José Caraballo Cueto, and José Villamil of Estudios Técnicos, gave their perspectives on the current economic situation in Puerto Rico and the United States, and their forecasts moving forward.
Panelists generally agreed that while Puerto Rico continues to benefit from post-disaster and pandemic-related federal funding, growth will likely taper as those funds phase out. The U.S. is unlikely to enter a recession, growth will slow and unemployment could rise.
The symposium made clear that while Puerto Rico has opportunities—particularly in tourism and construction—it must prepare for a future without extraordinary federal funding. Responsible fiscal planning, investment in economic resilience, and awareness of global and federal policy shifts will be essential.
A Mixed but Cautiously Optimistic Economic Outlook
- Moody’s forecasts modest growth of 0.4% for FY2025 and 0.1% for FY2026.
- The Puerto Rico Planning Board projects a more optimistic 1.2% Real GNP growth for FY2025, while the Oversight Board estimates a contraction of -0.8%.
- Despite strong job numbers, rising delinquencies in credit card and auto loan payments indicate financial vulnerability among consumers.
Employment Growth Driven by Key Sectors
- Private sector employment has rebounded, particularly in tourism, business services, and construction.
- Federal funds have driven job creation in infrastructure, including energy, housing, and road projects.
- The labor market is stable but heavily dependent on temporary federal aid.
Heavy Dependence on Federal Funds
- Federal funding made up 46% of Puerto Rico’s FY2025 budget, up from 34% in FY2017.
- Some funds are at risk: over $800 million in federal support, including $345 million from the Department of Energy and $147 million from the EPA, has been arbitrarily canceled.
- Certain departments show near-total dependency: Housing (96%), Family (90%), and Health (68%).
Demographic Stabilization
- Outmigration has slowed significantly, based on airport passenger data.
- However, the birth rate remains low, presenting long-term demographic challenges.
Housing Affordability Is Worsening
- Home prices are rising due to limited inventory and strong demand.
- Only 61% of median-income earners can now afford a median-priced home—down from 70% a year earlier.
- This growing gap is seen as a major social issue.
Tax Reform Is Critical
- Panelists called for broad tax reform that goes beyond tax cuts and includes new revenue sources.
- Suggestions included revisiting property assessments still based on 1954 values and introducing luxury taxes.
Climate Change Presents Serious Risks
- Rising temperatures and hurricane threats pose ongoing challenges.
- Coastal areas like San Juan and Guayama are especially vulnerable.
Broader U.S. Economic Context
- Inflation could peak near 3.9%, dampening consumer spending.
- New tariff policies and high interest rates may delay business investments.
- The unprecedented nature of the current tariff increases and their potential economic ripple effects was emphasized by panelists.
