In the Eye of the Stormgis.jp.pr.gov/Externo_Econ/Talleres/HCaleroEconomy2013... · 2013-10-31 ·...
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H.Calero Consulting Group, Inc. Puerto Rico 2013 - 2015 In the Eye of the Storm
Transcript of In the Eye of the Stormgis.jp.pr.gov/Externo_Econ/Talleres/HCaleroEconomy2013... · 2013-10-31 ·...
H.CaleroConsulting Group, Inc.
Puerto Rico 2013 - 2015
In the Eye of the Storm
ADJUNTAS
AGUADA
AGUASBUENAS
AIBONITO
AÑASCO
ARECIBO
BARRANQUITAS
CABOROJO
CAGUAS
CAYEY
CEIBACIALES
CIDRA
COAMO
COMERIO
FLORIDA
GUANICA
GUAYAMA
GURABO
JAYUYA
JUANA
DIAZ
JUNCOS
LAJAS
LARES
LAS MARIAS
MANATI
MARICAO
MAYAGÜEZ
MOCA
NAGUABO
OROCOVIS
PONCE
RIOGRANDE
SALINAS
SANGERMAN
SANJUAN
SANLORENZO
SANSEBASTIAN
SANTAISABEL
TOAALTA
TOABAJA
UTUADO
VEGAALTA
VEGABAJA
VILLALBA
YABUCOAYAUCO
Where is Puerto Rico today
Gross Domestic Product 12 $101.0b
Gross National Product 12 $69.5b
Population Census 2010 3.7m
Share of Manufacturing in GDP 46%
Income Per Capita 12 $16,934
Total Employment 7/13 0.9m
Inflation 7/13 1.9%
Unemployment rate 7/13 14.7%
Participation rate 7/13 41.0%
PR is a regional economy of US
10-year real GNP growth, %
7.0%
-1.3%
4.6%1.5%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
1950 1960 1970 1980 1990 2000 2010
PR US
Investment went down
Public & private investment, real $ million
2002 2004 2006 2008 2010 2012
Public Private
$1,872$1,621
-22%
-33%
Composition of GDP
1970
* Includes Transfers and Federal Grants
$101.0 B
2012
$5.0B
Global Manufacturing PMI
The economy relies on consumption
92%
71%
PR US
Real consumption as % of GDP, 2012
Living on transfers
$billion
* Includes Transfers and Federal Grants
’12
2012
Banking performance
Total assets down Total loans fall
Profitability is lowBank delinquency
-37% -18%
$ B
$ M
$ B
14,777
1,836
2004 2006 2008 2010 2012
PRSI continues in recession
Monthly PRSI
Sep 13, 2013
2,563
Loss of $17
billion in wealth
20,208
Duration of employment to return
to pre-recession levels
Months
77
52
20
84
1975 82-84 01-02 07-Now
Higher Unemployment in 2013
%
Unemployment rate by age group, %
11.1
18.4
19.4
14.0
6.6
8.2
5.9
14.0
25.8
17.8
15.8
13.1
12.5
11.4
0 10 20 30
Total
16-19
20-24
25-34
35-44
45-54
55-64
65+
2013
2006
%
NA
Most impacted sectors
PR employment by sector, FY ‘05 v. ‘13, 000s
7
-9
-12
-13
-28
-38
-40
-52
20
-3
-4
-15
-35
-40
-52
Services
Agric.
Transpor.
Financ.
Trade
Constr.
Mfg.
Gov.
Total
Establishment survey Household survey
-129
-185
Expect higher inflation
2.84.34.9
1.2
3.1
1.60.1
1.5
Jun-05 Jun-06 Jun-07 Jun-08 Jun-09
Revised IPC
Jul ’13
1.9%
PR posts mixed results
-6.7%
-17.2%
-0.1%
-7.6%
0.6%-0.2%
3.3% 3.4%
11.4%
1.1%
6.7%
0.5%
Coinc Constr Cons Mfg Banking Leading
HCCG quarterly economic Indices, 2Q 2013
The job challenge
Unemployment still a major problem
1,600
1,900
2,200
5%
10%
15%
20%
2000 2004 2008 2012
Unemployment rate Pool of available labour
As of Jul ’13
14.7%
000s
1,895
Revised change in methodology (2010 Census population)
Demographic challenge
1950 1960 1970 1980 1990 2000 2010
60+ Less 60
6% 20%15%
2.2 MM2.7
3.53.8 3.7
PR population, million
Migration challenge
440
216 224
Emigration Inmigration Net migration
2005-2011, 000s
Young people are leaving PR
Population by age group 2011, %
Emigrant PR population
Men Women Men Women
PR economic policy model
Fiscal
Autonomy
Political
Relations
US-PR
US Tax
Exemption
& Subsidies
Free
Trade
Political
Transformation
Tax
Exemption
Import of
Foreign Capital
& technology
Increased
Demand
Import
Substitution
Modernization
Of
Agriculture
Cheap
Labor
Cheap
Energy
Agrarian
Reform
Industrialization
Export
Promotion
(migration)
Local
Capital
Excess
Labor
unfinished
Federal
Local
Challenge: Competitiveness
9.5% 8.9%
22.5%
40.9%
15.8% 14.4%20.5%
50.7%
Profit taxes Labortaxes
Other taxes Total tax
2007 2013
40
31
29
23
23
22
20
20
19
16
13
10
10
8
6
Denmark
Germany
Puerto Rico
Chile
Dominican Rep.
Singapur
Japan
UK
Italy
Brazil
Greece
Peru
US
China
Argentina
Higher taxes than 6
years before
5th obstacle to Doing Business
Taxes as % commercial profits
Electricity cost
$ cents per kWh
Fiscal revenues challenge
2001 2003 2005 2007 2009 2011 2013
Other GF Sales Tax GF Law 154
$6.9B
$8.7B
$1.7B
$0.6B
$6.2B
$8.9B $8.5B
The public debt challenge
PR total public debt, $ billion
1418
24
34
47
71
58%
58% 58%67%
76%
99%
1992 1996 2000 2004 2008 2013
Public debt % of GNP
One notch above junk
GO Bonds Moody’s S&P Fitch
Prior rating Baa1 BBB BBB+
Current
rating
Baa3 BBB- BBB-
Date Dec-12 Mar-13 Mar-13
Outlook Negative Negative Negative
Junk rating Ba1 BB+ BB+
What challenges ahead?
PR’s growth depends on manufacturing and
investment
Public debt must be reduced
US fiscal woes threaten PR’s budget
Banking is not jumpstarting the economy
PR faces many challenges and a very mixed
outlook
In short:
1. PR is at a crossroad between fiscal
discipline and economic growth
2. Investment has not recovered.
3. Credit remains tight.
4. Labor market does not reflect more
jobs.
5. Structural change has not taken place.
6. Road to recovery is uphill.
Full recovery will take time…Forecast of US and PR real GNP growth
FY
Forecast
-0.2%
Consumption & Income
History Projected
% change, real 2010 2011 2012 2013 2014 2015
Consumption 1.4% 0.7% 3.0% 1.5% 0.5% 0.7%
Dispos.
Income
0.2% 1.8% -0.4% -0.6% -1.6% -0.2%
Baseline
Investment
History Projected
% change,
real
2010 2011 2012 2013 2014 2015
Construction -14.1% 2.0% 11.0% -2.8% -1.7% 2.0%
Machinery -2.3% 12.9% 1.0% 4.2% 1.2% -1.8%
Investment -7.8% 12.8% 4.4% -1.1% 0.8% -2.6%
Baseline
Exports
History Projected
% change,
real
2010 2011 2012 2013 2014 2015
Exports -3.9% 1.7% -4.1% -1.0% -1.7% 1.4%
Baseline
Unemployment
Baseline
History Projected
% change, real 2010 2011 2012 2013 2014 2015
Unemployment 16.3% 16.2% 15.2% 14.0% 14.1% 14.0%
Inflation
Baseline
History Projected
% change,
real
2010 2011 2012 2013 2014 2015
Inflation 2.0% 1.8% 2.6% 0.9% 2.4% 1.9%
Expected revenues from new taxes
450
270
237
533
New tax on grosssales
Higher corporateincome tax rates
Selected B2B
Other
$ million Total PR $1,490 million
Most impacted industries due
B2B Sales Tax proposal
2,911
1,433
648
377
333
276
235
184
181
180
Trade
Real estate
Construction
Banks
Pharma
Education
Other comm. Services
Telecom
Buinding maintenance
Air transport
Source: Planning Board, Input-Output Matrix 2002.
Service intensive Industries, $ million (2002 prices)
Potential results
1. Revenues fall below estimates
2. SUT B2B is to businesses what Law 7 was
to the labor market
3. Loss of competitiveness
4. Complex tax system
5. Incorrect use of sales tax
6. Downgrading of GO bonds to junk status
Years to return to 2006 GNP
2,901
7,351 7,332
1969 1975 1981 1987 1993 1999 2005 2011 2017 2023
Actual Forecast @1%
Real GNP, $ million
13 years
Years to return to 2006 GNP
2,901
7,351 7,332 7,335
1969 1975 1981 1987 1993 1999 2005 2011 2017 2023
Actual Forecast @1% Forecast @3.3%
Real GNP, $ million
4 years
13 years
Potential for agriculture
57,973
53,407
51,585
51,370
50,579
47,805
47,514
35,165
32,866
31,254
29,706
26,556
22,035
14,565
France
Denmark
Sweden
US
Canada
Netherlands
Finland
Australia
Germany
Italy
Singapore
New Zealand
Spain
Puerto Rico
Value added per worker ($ constant) 2011
Potential for tourism
8.5%
6.3%
5.9%
5.8%
4.7%
2.8%
1.7%
1.4%
1.1%
0.7%
0.5%
0.5%
0.44%
0.4%
France
US
Spain
China
Italy
Germany
Greece
Egypt
Netherlands
Portugal
Brazil
Argentina
Dominican Republic
Puerto Rico
9.6
2.6
DR PR
Avg. length of stay
(nights)
World tourism market share (% tourists) 2010
Puerto Rico has many assets
but not leveraged effectively
Strong high-tech
Strong services
Hub for Caribbean
Strong human capital
Attractive for knowledge workers
Entrepreneurial spirit
Bridge between LA and US
Assets
• Firms moving to lower cost locations
• Lose services; health & education to region
• Lose port & exports to Jamaica, et al
• Squandering most critical asset
• Social & physical environment - liabilities
• No basis for local innovation & industry
• “Neither here, nor there”
Outcomes
• Limited R&D & local linkages
• Cost disadvantages
• No promotion of services
• Declining quality in education
• Losing lead in infrastructure
• Shrinking production industries
• Deteriorating education quality
• Ineffective institutions
• Environmental degradation
• Crime and drugs
• Risk-aversion
• Lack of support & Red tape
• Little focus outside the US
• Even in the US, few linkages
Threats
