Puerto Rico economy shrinking, gov't index shows

SAN JUAN Mon Dec 9, 2013 12:11pm EST

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SAN JUAN Dec 9 (Reuters) - Puerto Rico's economy contracted further this fall from a year earlier, government data showed on Monday, indicating the struggling Caribbean commonwealth is unlikely to claw out of an unrelenting recession any time soon.

Monthly data from the Government Development Bank tracking employment, gasoline sales and other indicators on the island declined 5.2 percent in September and 5.4 percent in October from a year earlier.

Through October, Puerto Rico's economy has shrunk by 5.3 percent in the fiscal year that began July 1, according to the GDB's Economic Activity Index.

A big issuer of municipal bonds, the island has been in or near recession for eight years as it suffers from a loss of U.S. federal government economic support, cuts in Puerto Rican government spending, high oil prices and population loss.

The Puerto Rico Planning Board recently pulled back from a forecast of 0.2 percent growth for the current fiscal year to a prediction of a 0.8 percent contraction.

The GDB index, which has proven to closely track Puerto Rico's gross national product, also includes electricity consumption and cement sales. The GDB reports for September and October had been delayed by the federal government shutdown, which slowed the U.S. Labor Department's Bureau of Labor Statistics' release of employment statistics.

All four categories of the EAI showed declines in September and October when compared to the year-ago period.

The GDB, however, highlighted a glimmer of improvement when the data is examined on a sequential, or month-over-month, basis rather than year-over-year.

The index rose in October to 125.7 from September's 125, its second straight sequential increase. The index for October inched up 0.6 percent following a 1.1 percent in September from August.

"The Economic Activity Index has shown two consecutive months of positive month-over-month growth rates, both in September 2013 and October 2013," the GDB said in the report. "While it cannot be concluded that the economic activity is necessarily experiencing an effective inflection point, these are the first months of increase since October 2012."

The island suffers from chronic unemployment worse than any state and last month received a warning from Fitch Ratings that its debt rating may be reduced to junk bond status. Two other U.S. credit agencies also rate Puerto Rico as barely investment grade and are weighing rate cuts, partly out of worries about its shrinking economy.

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