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Santander Securities Bullish On Local Economy

by Lida Estela Rua

March 16, 2000
Copyright © 2000 CARIBBEAN BUSINESS. All Rights Reserved.

Santander Securities made public its assessment of the local economy and its outlook for Fiscal Year (FY) 2000 is that the gross national product (GNP) will grow 3.2%--higher than the Planning Board's 2.7% estimate--largely fueled by a robust economy, $1.6 billion of hurricane Georges disbursements to be made this year, and election year spending.

Jose Ramon Gonzalez, Santander Securities president, anticipates "another year of double-digit growth" for Puerto Rico banks "which should continue reporting strong earnings" and further industry consolidations. Local bank stocks are expected to do better than their U.S. peers this year because valuations are cheap, trading at an average 8.0 times expected 2000 earnings vs. 9.8 times in the U.S. And on a price-to-book basis they're trading at a 6% discount to their U.S. peers. Santander predicted an average increase of 10% in net income for local banks this year.

Just as FY 1999's real GNP grew at 4.2% surpassed Planning Board preliminary estimates of 3.4%, 2000's GNP should also be higher, at 3.2%. This should benefit the retail sector which will also be attractive because of" the novelty of new stores and malls and from increased competition and efficiency of e-commerce on the island," according to the Santander report.

The report quotes the Planning Board, which said consumption remains the largest component of the GNP, with an increase of 6.4% in FY 1999, in its three components, durable goods, non-durable goods, and services. While last year's durable goods increase was 14.4%, this year's overall consumer increase is expected to average 5% but durable goods (automobiles, furniture, and household appliances) are expected to slow down, due mainly to increased interest rates and energy prices.

Although the Planning Board anticipates an increase of 11.9% year- to-year in construction investment, reaching $7.4 billion in FY 2000, of which $3.67 billion is expected to be private investment, Santander Securities anticipates a slight slowdown in 2001. This will be due to a decrease in residential demand because previously constructed units will be delivered and because general elections will issue in a new government administration "which typically brings a brief period of adjustment."

Concerning the end of Section 936 of the U.S. Internal Revenue Code in 2006, Santander said labor-intensive industries would have eventually left the island regardless of 936's fate. It adds that capital-intensive industries--pharmaceuticals and electronics-- which have a niche and invested heavily in infrastructure and human capital, are expected to attract further foreign direct investment in the island. The local 1998 Tax Incentives Law and the government's lobbying at federal levels for the permanence of Section 30A "should help sustain the island's competitive position."

Other conclusions are that tourism is expected to play an increasingly important role in economic growth in the next years. Unemployment is expected to remain at around 11% during 2000, despite continuous job losses resulting from reductions in labor-intensive manufacturing and slower rate of job creation from the growth of capital-intensive manufacturing.

This Caribbean Business article appears courtesy of Casiano Communications.
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