Remittance slowdown no cause for alarm, says think tank

MANILA, Philippines – London-based Capital Economics Ltd. believes the country’s strong manufacturing and business process outsourcing (BPO) sectors will more than make up for the slackening growth in remittances from overseas Filipinos.

Gareth Leather, senior Asia economist at Capital Economics, said the recent slowdown in remittances is not a major cause of concern as other sectors of the economy are growing strongly.

The investment bank has penciled a four percent growth in cash remittances from Filipinos abroad both in peso and US dollar terms.

“But even if remittances do remain weak, this shouldn’t be a disaster. Other sectors of the economy, notably manufacturing and business outsourcing, are growing strongly and should more than make up for the weakness in remittances,” he said.

He pointed out the Philippines could finally be reaching a stage where it no longer needs to send people abroad in order to grow quickly.

Remittances are equivalent to around 10 percent of the country’s domestic output as measured by the gross domestic product (GDP) and plays a key role in supporting private consumption and keeping the current account in surplus.

Although remittance growth has slowed in US dollar terms, the economist explained currency depreciation has meant that they are holding up much better in peso terms, which is what matters for domestic purchasing power.

He added the broader economy hardly seems to have been affected as the country’s GDP grew 5.8 percent last year.

He noted the key factor behind the slowdown in remittances has been a recent sharp drop in money being transferred over from the US that account for 40 percent of the total as well as weaker growth from the Middle East that has a 20 percent share.

“The drop in remittances from the US looks to have been caused by a change in regulations that has made it more difficult for US banks to transfer money to the Philippines,” Leather said.

He added Filipino workers are likely to find other ways of sending their money back to their loved ones in the Philippines.

More worrying, he said, is the outlook for the Middle East, where lower oil prices are weighing heavily on economic prospects.

In the first 11 months last year, cash remittances went up 3.6 percent to $22.83 billion from $22.08 billion in the same period in 2014. The full-year data for 2015 will be released tomorrow.

For this year, remittances are expected to increase four percent on account of the steady deployment of Filipino workers, greater diversification of country destinations, and shift to higher-skilled types of work.