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2021 Economic Outlook

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2021 Economic Outlook December 2020 Public Meeting - Update from Executive Director 2021 Economic Outlook 2 December 2020 Public Meeting - Update from Executive Director Various forecasts suggest a partial recovery in 2021 for US, Latin America, and the Caribbean Forecasts US and Latin America Outlook • A wide variety of forecasts have been Outlook for US and Latin America & the Caribbean produced by international organizations (Real GDP Annual % Change) 2020 & 2021 such as the UN, World Bank, and IMF. 3.9% 4.0% 3.6% 3.1% 3.1% • Most forecasts suggest US, Latin 2.8% America, and the Caribbean will see some recovery in 2021. • However, none expect a swift and complete recovery. Expected growth rates in 2021 -4.3% would not return these economies -4.8% -5.4% to their Pre-pandemic levels. -6.1% -7.2% -8.1% UN (May 2020) WB (Jun 20) IMF (Oct 20) UN (May 2020) WB (Jun 20) IMF (Oct 20) 2020 2021 Latin America and the Caribbean US 3 December 2020 Public Meeting - Update from Executive Director July CBO forecast suggested a stronger US recovery; however, this was produced prior to rise in confirmed cases CBO Forecast US Real GDP • The Certified Fiscal Plan uses the CBO’s forecast as an input in its macroeconomic projections. US Real GDP Annual % Change • Under the assumption that growth in the US economy is one of several 4.0% factors that impacts growth in the PR 2.8% economy. • The 2020 CFP used the CBO’s April forecast. However, since then CBO has released multiple updates. • The latest update suggests a stronger -5.6% -5.8% recovery in 2021. • However, this forecast was CBO April CBO July produced prior to the latest rise in 2020 2021 deaths per day of close to 3,000. • The next CBO release is in January. 4 December 2020 Public Meeting - Update from Executive Director 2020 Certified Fiscal Plan Forecast Fiscal Plan Forecast Puerto Rico Real GNP and EDB Economic Activity Index Puerto Rico Real GNP Growth Rate • The Fiscal Plan’s baseline scenario FY20 FY21 FY20 FY21 assumed that the pandemic would recede 0.5% during the second half of 2020 and continue a modest recovery into 2021. • The Fiscal Plan’s downside scenario was -3.4% intended to reflect the possibility of the virus -4.0% not receding during this period, which might -5.8% be accompanied with additional restrictions or Baseline Downside lockdowns. Puerto Rico EDB Economic Activity Index, Jan. 2019 – Sept. 2020 • The economy has shown some signs of recovery starting in July, though as of September we were still below Pre-pandemic levels (-6% relative to January). • The absence of additional federal stimulus, combined with the recent spike in cases and additional restrictions, suggest a slower pace of recovery may already be underway. 5 December 2020 Public Meeting - Update from Executive Director Inflation expected to remain low Low Inflation Fiscal Plan Inflation Forecast • In line with the reduction in economic activity, the Annual Puerto Rico Inflation Rate expectation is that prices 1.2% will remain relatively low. 1.1% 1.0% 1.0% • Fiscal Year 2020 closed with a 0% inflation rate. 0.8% • The Fiscal Plan forecast 0.6% expects inflation to remain 0.4% close to zero in FY2021 0.3% (0.3%). 0.2% • Fiscal Years 2022 & 2023, 0.0% are expected to continue 2021 2022 2023 seeing low inflation of ~1%. 6 December 2020 Public Meeting - Update from Executive Director Uncertainty in the short term Uncertainty Puerto Rico Real GDP • The key takeaway is that the short term is characterized by much uncertainty. Puerto Rico Real GNP Growth Rate • However, the Fiscal Plan’s baseline and downside scenarios still provide a good sense of the range of possibilities. FY20 FY21 FY20 FY21 0.5% • A variety of factors may push the economy anywhere within this range, including: • Availability of vaccines for general population and effectiveness of distribution logistics. -3.4% -4.0% • Whether there is incremental federal stimulus approved in Congress. -5.8% • Citizen cooperation with CDC- guidelines and the government’s Baseline Downside Executive Order • Extent of scarring in the Puerto Rican economy 7 December 2020 Public Meeting - Update from Executive Director Potential scarring in the Puerto Rican economy; particularly on its youth “The COVID-19 pandemic will likely leave deep scars on productivity and output via a dislocation of labor, a tightening of credit.” -Alistair Dieppe, World Bank. “Beyond its short-term impact, deep recessions triggered by the pandemic are likely to leave lasting scars through multiple channels, including lower investment, erosion of the human capital of the unemployed, and a retreat from global trade and supply linkages.” –World Bank Report Taking Stock, July 2020 “Evidence from past business cycles indicates that those who enter the labor market during downturns are “scarred” for many years thereafter, with lower employment and wages than similar individuals from cohorts that entered at better times” -Jesse Rothstein, UC Berkeley, NBER, 8 December 2020 Public Meeting - Update from Executive Director Slower job recovery in key sectors in Puerto Rico suggests deeper scarring ∑ On average, the job recovery for Puerto Rico has been slower than for the mainland United States ∑ In Puerto Rico, 46% of the jobs lost in April were recovered by October, compared to 67% in the United States. ∑ Leisure and hospitality is one of the hardest hit sectors in Puerto Rico, with 43% of employment lost in April (~35,000 jobs). Roughly 41% of the lost jobs were recovered by October. During the same timeframe, the US has recovered about 67% of lost jobs. ∑ Trade, transportation, and utilities lost about 42,000 jobs in April and recovered 69% of these by October. This compares to a recovery of 82% of the lost jobs in the mainland U.S. ∑ Construction lost about 10,000 jobs in April and recovered 54% of the jobs by October. This compares to 126% recovery in the mainland United States. ∑ The Puerto Rico Restaurant Association’s (ASORE) internal surveys and estimates suggest 25% of restaurants will permanently close due to the pandemic, which may represent the loss of up to 30,000 jobs 1 Change in employment (non-farm) in Puerto Rico, March 2020 – October 2020 Change in employment (non-farm) in US, March 2020 – October 2020 (in 000s, not seasonally adjusted) (in 000s, not seasonally adjusted) Source: Bureau of Labor Statistics (BLS) Note: Lost jobs are calculated by subtracting the employment level in April from that in March 2020. ‘*’ For the government industry in Puerto Rico, lost jobs are calculated by subtracting the employment level in June from that in March 2020. Data are counts of jobs by place of work. All data are considered preliminary according to the BLS. The employment estimates are subject to survey error. Data for US are calculated by taking the sum of employment for all states as provided in the state employment and unemployment data. Mining and logging is combined with construction for Delaware, District of Columbia, Virgin Islands and Hawaii. 1. https://www.elnuevodia.com/negocios/empresas-comercios/notas/restaurantes-piden-al-gobierno-abrir-los-salones-comedores-los-domingos/ 9 December 2020 Public Meeting - Update from Executive Director Younger workers were in a more vulnerable position prior to pandemic Impact in Young Workers Unemployment by Age Groups • Unemployment is structurally higher for younger workers in Puerto Rico. Unemployment Rate by Age (January 2020) • Yet percentage of population 40.00% (25 or above) with a bachelor's 35.80% 35.00% degree or higher increased from 21% in 2010 to 26% in 2019 30.00% 27.10% (American Community Survey) 25.00% 20.00% • A higher proportion of younger 16.20% Puerto Ricans are seeking and 15.00% obtaining college degrees but 10.00% 5.60% will face a labor market further 4% 4.40% weakened by the pandemic. 5.00% • Research shows this may 0.00% have long lasting impacts 16-19 20-24 25-34 35-44 45-54 55-64 in their career development and income. • This may also further accelerate outmigration of Puerto Rican youth. 10 Long term prospect is a continuation of the economy’s secular decline December 2020PublicMeeting-UpdatefromExecutiveDirector Puerto Rico EDB Economic Activity Index, Sept. 2003 – Sept. 2020 Long term 165.0 Expectations 155.0 145.0 • Despite the 135.0 11 uncertain short term, the long- 125.0 term prospect 115.0 Hurricane María COVID remains the 105.0 same for Puerto 95.0 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 Rico: M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 0 0 0 1 1 1 2 2 2 3 3 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 • A shrinking economy and Annual Births, Deaths, and Natural Increase in Population, 2000 – 2019 population 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 -10,000 -20,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Births Deaths Natural Increase December 2020 Public Meeting - Update from Executive Director Long term prospect is a continuation of the economy’s secular decline • This is also reflected in the Fiscal Plan’s long-term projections, which show deficits returning in the 2030s.
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