Economy Stuck in Neutral, Economists Tell Oversight Board, as the Island Takes Stock of Where It Stands

Puerto Rico’s economy is expected to remain trapped in a prolonged period of stagnation as strong tourism activity, pharmaceutical investment and reconstruction spending struggle to offset high energy costs, inflation, demographic decline and weakening consumer demand, according to economists speaking Wednesday at the Puerto Rico Financial Oversight and Management Board’s annual Economic Forecast Symposium.

Although analysts offered varying forecasts, presenters from the Federal Reserve Bank of New York, Moody’s Analytics, V2A Consulting and Estudios Técnicos broadly agreed that the island faces another year of sluggish growth and significant economic challenges.

The forum is one more sign that Puerto Rico is in the middle of a public stock-taking of its economy. In recent weeks, as reported in multiple CB stories, the Oversight Board’s quarterly report, the government’s Economic Activity Index, private price and credit indicators and business groups’ warnings have arrived within days of one another, and professionals, executives, agencies and economists are now reading them side by side and asking the same question: what, if anything, moves the economy out of neutral?

Despite differences in their forecasts, speakers reached similar conclusions: tourism, manufacturing, reconstruction, and the self-employment proliferation, remain the principal engines keeping Puerto Rico’s economy moving forward, but high energy costs, population decline, labor shortages and growing fiscal uncertainty continue to restrain growth.

CB’s own coverage reflects the pattern, including an analysis this morning of the September index, found the economy “holding steady, not accelerating,” and its Oct. 19 report on the Board’s findings described “slower, more measured growth rather than a downturn.”

The symposium addressed the same concerns. It was meant to help the Board, the governor’s fiscal team and legislative leaders, including the chairs of the House and Senate budget and ways and means committees, reach “consensus on Puerto Rico’s economic outlook” to guide fiscal and budget planning.

The Board’s program also listed S&P Global Market Intelligence and a University of Puerto Rico economist, whose presentations were not available at press time.

Households are stretched

Joelle Scally, an economic policy advisor at the Federal Reserve Bank of New York, said Puerto Rico’s economy has seen little growth during the past two years, even as tourism remained a bright spot. She noted that while the labor market has been relatively stable, rising credit-card delinquencies suggest mounting financial stress among households. She also pointed to aging and continued outmigration as key long-term obstacles to stronger economic performance.

That stress is visible in recent data. Estudios Técnicos’ Consumer Financial Fragility Index rose to 42.2 points in the second quarter from 33.7 in the first, its largest quarterly increase in more than a year, as consumer-loan delinquency climbed from 2.62% to 3.07% and credit-card interest rates stayed near 20.94%, according to the firm’s analysis reported by CB in August.

According to the New York Fed analysis, nearly one-third of Puerto Ricans who were young adults in 2010 now reside on the U.S. mainland, a trend that continues to weigh on labor force growth and economic dynamism.

The Labor Department’s Consumer Price Index rose 3.8% in September from a year earlier, with transportation up 9.7% and car fuel up 33.2% so far in 2026, and the dollar buys about 69 cents of what it did in December 2006, according to the department’s data as reported by CB on Nov. 2. Economist Heidi Calero told CB that middle-income families are squeezed, “the ham in the sandwich.”

A stalled economy, by V2A’s count

The most blunt assessment came from V2A Consulting, whose presentation argued that Puerto Rico’s economy is effectively stalled. The firm’s data showed that the island’s Economic Activity Index in August 2026 stood at essentially the same level recorded in August 2023, while payroll employment has remained largely unchanged since 2024.

The government’s own index offers a slightly more favorable reading, but not a different story. The Economic Activity Index rose 0.8% in September from a year earlier, to 129.4 points, the Department of Economic Development and Commerce reported, after the Oversight Board found it down 0.2% over the first nine months of fiscal 2026. A gain under 1% is consistent with V2A’s description of an economy that is moving sideways.

Xavier Diví and the V2A team said inflation and energy costs have become major drags on both consumers and businesses. Commercial electricity prices have risen 31% since 2019, while residential rates have increased 21%. The firm estimated that a 20% increase in power costs removes roughly $935 million annually from Puerto Rico’s economy and can cut a typical supermarket’s profit margins in half.

Energy is the cost most directly tied to the island’s small businesses. Residential electricity reached a record 33.86 cents per kWh in October, and small and midsize businesses face rates above 36 cents, according to CB’s Oct. 27 report. The Centro Unido de Detallistas warns that as many as 12,000 small and midsize businesses could close and about 70,000 jobs could be lost, the feared Pymes Power Cliff, if costs are not cut directly. V2A’s estimate for supermarkets points in the same direction.

Tourism and pharmaceuticals carry the load

Despite those pressures, V2A noted that tourism and manufacturing continue to provide support. Leisure and hospitality employment grew 4.7% year over year, cruise passenger traffic increased 43%, and manufacturers announced approximately $1.6 billion in new investments over the last year, led by pharmaceutical companies such as Eli Lilly and Amgen.

Tourism’s strength is documented elsewhere. Foundation for Puerto Rico’s new model projects nearly $7.9 billion in direct visitor spending in 2026, up 4.2%, and about 126,000 tourism jobs, as CB reported Nov. 3. The same model shows San Juan airport traffic down about 3% year to date, which suggests that spending per visitor, not arrivals, is driving much of the gain.

Manufacturing’s pipeline is large, though its measure varies by source. The Puerto Rico Manufacturers Association told CB in October that commitments made between September 2025 and September 2026 amount to nearly 2,800 jobs and about $2.7 billion in planned investment, against V2A’s count of $1.6 billion in announcements. The association’s leaders also said that a shortage of workers is the main obstacle to turning those commitments into production.

A boom in self-employed professionals, startups and small business adds a vibrant and largely unmeasured boost to the economy, as CB reported here.

Forecasts diverge, but the diagnosis does not

Still, the consulting firm warned that headwinds outweigh tailwinds heading into 2027. Among the chief concerns are elevated oil prices, higher U.S. interest rates, delayed impacts from tariffs, and uncertainty surrounding federal healthcare funding. V2A specifically highlighted the so-called Medicaid cliff scheduled for October 2027 as a significant risk to the island’s economy and public finances.

The cliff is the largest single item on that list. Federal funding for the island’s Medicaid program is scheduled to fall from about $4.2 billion a year to roughly $500 million when current funding ends on Sept. 30, 2027, according to published reports, and the Oversight Board has put the budget risk of maintaining current services at up to $3.8 billion a year from fiscal 2028 through 2030. CB’s analysis this week noted that the new Democratic majority elected Nov. 3 improves the odds of a reauthorization but does not guarantee it.

Meanwhile, Gustavo Rojas-Matute of Moody’s Analytics projected Puerto Rico’s real GDP growth at just 0.3% in 2027 after 0.8% growth this year. Moody’s argued that robust tourism activity and more than $2 billion in pharmaceutical and medical-device investments since 2025 are helping sustain economic activity. However, those gains are being offset by record electricity prices, high borrowing costs and ongoing population decline.

The most pessimistic forecast came from Estudios Técnicos, which projected that Puerto Rico’s real gross national product will contract 1.4% in fiscal 2027. The firm pointed to weakening retail sales, slowing wage growth, rising construction costs and continued demographic challenges as evidence that the economy remains vulnerable despite relatively healthy employment figures.

The forecasts are not strictly comparable. Moody’s measures gross domestic product, while Estudios Técnicos and the Oversight Board track gross national product, which excludes income earned by foreign-owned firms, and the Board’s own estimate of GNP growth is about 0.4% for fiscal 2026. Read together, the range for the coming year runs from a 1.4% contraction to 0.3% growth, centered on stagnation.

Federal money and the search for a way forward

Economists also stressed Puerto Rico’s dependence on federal funding. According to Estudios Técnicos, federal funds account for 44.5% of the consolidated fiscal year 2027 budget, making potential reductions in Washington support a major risk for the island. At the same time, approximately $41.7 billion in reconstruction funds remain undisbursed, providing a potential source of growth if projects can move forward more quickly.

The $41.7 billion refers to reconstruction funds. The Oversight Board’s October report counted roughly $62.2 billion disbursed since fiscal 2018 across federal disaster, COVID-19 and reconstruction programs and another $56.2 billion still available, and warned that the money may be masking structural weaknesses.

Despite differences in their forecasts, speakers reached similar conclusions: tourism, pharmaceutical manufacturing, reconstruction spending, and the self-employment proliferation, remain the principal engines keeping Puerto Rico’s economy moving forward, but high energy costs, population decline, labor shortages and growing fiscal uncertainty continue to restrain growth.

As V2A summarized, if current trends persist, Puerto Rico is likely headed into another year marked less by recession than by economic stagnation.

The way forward, several of these readings suggest, runs through people as much as projects. CB reported in September that Puerto Rico’s net hiring outlook for the fourth quarter stands at 34%, according to ManpowerGroup, even as bankruptcy filings rise and unemployment reached 6.0% in July, and that a CRECE study found 89% of able-bodied Nutrition Assistance Program recipients earn income through formal or informal work, 66% of them informally.

Bringing that hidden workforce into the formal economy is one of the few growth levers that does not depend on Washington.

What the symposium adds to this record is a common reference point. Forecasters who differ by nearly two percentage points on growth agree on what is holding the economy back: energy costs, a shrinking and aging population, and a dependence on federal money that has an expiration date.

The stock-taking matters less for any single forecast than for the shared diagnosis it is producing among the Board, the government and the private sector.

The test is whether that diagnosis becomes action in the coming budget cycle: a lower-cost energy path for small businesses, faster disbursement of reconstruction money, a Medicaid fix before October 2027, and policies that pull idle workers and returning professionals into the formal workforce.