August 21, 2009 / 9:27 PM / 10 years ago

UPDATE 1-Puerto Rico economy shrank 5.5 pct in fiscal '09

* Planning Board chief says economy “touched bottom”

* Sees improvement in Q1 fiscal year 2010 started July 1 (Adds quotes, details)

SAN JUAN, Aug 21 (Reuters) - Puerto Rico’s economy shrank by 5.5 percent in its 2009 fiscal year that ended on June 30, but the economy is expected to recover this year, Planning Board President Hector Morales Vargas said on Friday.

He estimated the economy would growing by 0.7 percent in fiscal 2010, after signs of improvement in the first quarter.

The decline in fiscal 2009 followed a 2.5 percent contraction in the prior year,

“Our analysis shows we have touched bottom with a 5.5 percent deceleration,” Morales Vargas said. “We see light at the end of the tunnel. Puerto Rico will experience economic growth this year.”

Several factors such as construction, investment, federal transfers, visitor spending and an improvement in the global and U.S. economies were all contributing to the improving outlook, Morales Vargas said .

The U.S. territory is now expected to get just over $6 billion under the American Recovery and Reinvestment Act of President Barack Obama’s administration, more than $1 billion more than what was originally estimated.

Government officials said this week that more than half of those funds — $3.5 billion — will be injected into the Caribbean island’s economy during the fiscal year ending June 30, 2010.

The administration of Governor Luis Fortuno, which took power in January and said it had inherited a $3.2 billion budget deficit, has undertaken a series of austerity measures aimed at reducing government spending by $2 billion this year.

The moves are aimed at saving the commonwealth government’s credit rating, which Moody’s and Standard & Poor’s currently rate a notch above junk, or non-investment grade, levels.

In May, the government dismissed 7,800 employees, the first round of lay-offs that could reach as many as 30,000 throughout fiscal 2010. Officials have said the dismissals would take place before December.

Earlier this month, the Treasury Department reported a $492 million drop in net commonwealth government general fund revenues to $7.76 billion during fiscal year 2009. (Editing by Pascal Fletcher and Leslie Adler)

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