Puerto Rico Economic Forecast

The economy ended FY 2023 (July 2022–June 2023) on a high note, following a devastating start when hurricane Fiona made landfall in September 2022. Economic activity expanded 3.0% year on year in June—the most robust increase since April 2022. As a result, the expansion in the final quarter of FY 2023 was above Q3’s decline. This brought average activity growth to 0.3% in FY 2023, suggesting GDP could have met our panel’s expectations of a full-year increase. Looking at quarterly data, an upturn in growth in Q4 was likely driven by softer inflation alleviating pressure on purchasing power; retail sales rose 4.4% year on year in Q4, hinting at resilient private spending. That said, a higher unemployment rate could have capped the overall improvement; goods imports grew at the slowest pace in over two years. Meanwhile, merchandise exports rose at a softer annual pace in Q4 than in Q3.

In July, inflation was unchanged at June’s 2.3%; housing and utilities prices rose at a slower pace, offsetting a more moderate decline in prices for transport. In FY 2024—which started in July 2023— average inflation will more than halve from FY 2023’s level due to a higher unemployment rate and slower economic activity.