By Juan Lara *
Estimates of gross domestic product (GDP) and other central macroeconomic variables for Puerto Rico recently published by the US Department of Commerce’s Bureau of Economic Analysis (“BEA”, as we know it by its English acronym), shed light on the behavior of aggregate spending in times of strong turmoil and on our state as a regional economy within (or on the margins) of the US economy.
Estimates are published up to 2019, which cover the downturn and recovery period after Hurricane Maria. It will be important to see, in the future, BEA estimates for the duration of the Covid 19 pandemic, but that is yet to come.
In the year of the hurricane (2017), there was a 4.7% decrease in real GDP, despite the fact that the effects of the disaster occurred in the last quarter of the year. An important part of this contraction was due to a 9.2% drop in private investment, but there was also a drop, as expected, in net exports and private consumption. In the following year, 2018, with the economy already in recovery after the hurricane, private investment increased by 64%, and the ratio of private investment to GDP increased by about seven percentage points in one year.
The behavior of stocks is of particular importance in this time of turmoil in the local economy. According to BEA estimates, most of the drop in investment in the hurricane year was due to a sharp drop in inventories, which is understandable if we remember the serious supply problems that occurred across the chain. Distribution in the months following the natural disaster. By contrast, there was an extraordinary increase in inventories in 2018, which was certainly due to the renewal of industries with the normalization of access to suppliers.
Interestingly, despite the recovery in aggregate demand after the hurricane, which increased 4.7% in real terms, real GDP contracted again in 2018, by 2.4%. This difference is mainly due to a 20% jump in imports, which came to make up for the insufficiency of domestic production to meet consumer demand and to rebuild stocks.
Changes in real GDP in these two years may seem moderate given the magnitude of hurricane damage, but strong shifts in the components of total spending and imports reveal that the decline and rebound are consistent with external disturbances. A major brand.
In addition, the BEA estimates help visualize how the regional economic situation plays a role in the adjustment process in the face of a major shock. Quick access to imported goods – made possible by financing that does not appear explicitly in the calculation of GDP and aggregate spending – provides a mechanism for “exporting” part of the adjustment, and allows for the recovery of demand and stocks that in other circumstances would take much longer.
To get a better picture of this process, quarterly estimates of GDP and aggregate spending would be desirable, as “shocks” tend to focus in one or two quarters, and annual forecasts obscure the downturn path and beyond. recovery. Since then, in fact, average them. This applies to both hurricane shock and pandemic shock; Let us remember that the lockdown due to the pandemic was concentrated in the second quarter of 2020. Since then, the available indicators show a pattern of sustainable recovery, despite certain pauses.
One exercise that would be interesting to watch, and which we recommend to students and younger colleagues, is to compare BEA estimates with Planning Board numbers. The comparison cannot be very direct, because some data is from the fiscal year and others are from the calendar year, but the differences in growth rates and in the estimated level of GDP at current prices (BEA estimate above 5%) is more than (the Board) detailed analysis.
- The author is Professor of Economics at the University of Puerto Rico in Rio Piedras.
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