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Puerto Rico Country Risk Report Q3 2017

Core Views

Economic activity in the Dominican Republic will decelerate through2018 as investment and government consumption retreat from previouslevels. Tourism and related services will continue to be brightspots, providing tailwinds to the economy.

Major Forecast Changes

We have upgraded our forecast for the Dominican Republic's fiscaldeficit to 2.6% of GDP in 2017, from 2.9% previously.

We have revised our end-2017 interest rate forecast to 6.00% from5.50% previously, as we expect the Banco Central de la RepublicaDominicana to keep pace with the US Fed in tightening policy.


BMI Indices – Brief Methodology
BMI Risk Index – Dominican Republic
BMI Risk Index – Puerto Rico
BMI Index League Tables
Executive Summary – Dominican Republic
Core Views
Major Forecast Changes
Key Risks
Chapter 1.1: Economic Outlook – Dominican Republic
SWOT Analysis
Economic Growth Outlook
Investment And Private Consumption To Keep Growth Elevated
Robust fixed investment and private consumption will drive strong real GDP growth in the Dominican Republic over the coming years.
However, the rate of expansion will continue to decelerate amid rising borrowing costs and an uncertain trade outlook.
External Trade And Investment Outlook
Tourism To Finance Widening Current Account Deficit
A robust tourism sector will sustain the Dominican Republic's external account stability over the coming years despite a widening current
account deficit. While rising imports will exacerbate the shortfall in traded goods, tourism will underpin a services surplus and be the
primary source of foreign currency and investment.
Chapter 1.2: 10-Year Forecast – Dominican Republic
The Dominican Republic Economy To 2026
Tourism To Drive Growth
The Dominican Republic's economic outlook is bright over the next decade, with the country set to benefit both directly and indirectly
from growth in the US. A strengthening tourism sector, driven by arrivals from the US, will bolster revenues in the sector and feed
through to growth in construction, services and private consumption.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 1.3: Political Outlook – Dominican Republic
SWOT Analysis
Domestic Politics
Scandals To Slow Policymaking
Policymaking in the Dominican Republic will be hampered by ongoing corruption scandals and divisions within the ruling party. While
the Medina administration will continue to lose public support over its limited success in combating perceptions of impunity, legislative
majorities and strong economic performance will ensure policy continuity.
Long-Term Political Outlook
Economic Improvements To Support Policy Continuity
Government policies will remain business-friendly in the Dominican Republic in the coming years, as strong economic growth ensures
the current political direction of the country remains relatively popular. The main threats to policy continuity are a deteriorating security
environment and rising public discontent over perceived impunity for government officials linked to wrongdoing.
Contents
Executive Summary – Puerto Rico
Core Views
Major Forecast Changes
Key Risks
Chapter 2.1: Economic Outlook – Puerto Rico
SWOT Analysis
Economic Growth Outlook
Fiscal Austerity To Deepen Economic Recession
Puerto Rico's economy will remain in contraction over the next five years, as sharp public expenditure cuts and an internal devaluation
play out. While these processes and several pro-business reforms will eventually see the territory return to growth, we expect private
consumption and investment to remain weak for the foreseeable future.
External Trade And Investment Outlook
Surplus To Remain Sizeable In Coming Years
Weak internal demand will see Puerto Rico's current account remain in surplus in the years ahead. Additionally, low investor interest in
Puerto Rican assets will see the territory's negative net international position shrink relative to GDP.
Chapter 2.2: 10-Year Forecast – Puerto Rico
The Puerto Rican Economy To 2026
Fiscal Austerity, Demographics To Keep Growth Weak
Puerto Rico will remain in recession over the next four years due to sharp fiscal consolidation, an internal devaluation and falling
investment. While we forecast the territory to return to growth over the latter half of the next decade, weak demographics will undermine
Puerto Rico's labour force.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 2.3: Political Outlook – Puerto Rico
SWOT Analysis
Domestic Politics
Independence Movement Unlikely To Receive Significant Support
Puerto Rican voters are unlikely to support full independence from the US in the territory's upcoming status referendum, given past
voting results and the economic costs of such a move. That said, anger against cuts imposed by the fiscal control board could increase
support for independence parties in the long term.
TABLE: PIP VOTE SHARE AND NUMBER OF SEATS HELD
Long-Term Political Outlook
Recession And Political Status The Main Challenges Ahead
Puerto Rico's long-term political stability will be challenged by the island's deep economic recession, strict fiscal consolidation and
renewed questions surrounding the commonwealth's political status. However, we expect that the island's stable democratic institutions
will support broad political stability over the next decade.
Chapter 3: BMI Global Macro Outlook
From Reflation To Disappointment
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % Y-O-Y
TABLE: DOMINICAN REPUBLIC AND PUERTO RICO – MACROECONOMIC DATA AND FORECASTS

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