Asia, Mideast remittance to offset weak US trends

CEBU, Philippines – While overseas remittance has dwindled in recent months, job demand from other countries however, especially from aging societies in Asia, is seen to help sustain its strength.

HSBC economist Joseph Incalcaterra said the slowdown of remittances in 2015 was surprising. He said the sharp decline in remittances from the US has been the main source of the deceleration.

However, he said the strong demand for Filipino workers especially for healthcare professionals particularly in nations with growing aging population, is seen to help the rate of remittance inflow to the Philippines back on track.

To date, remittances from Asia and the Middle East have remained relatively strong.

"A confluence of factors can explain the drop-off from the US, such as stricter financial regulations and higher bank transaction costs, while FX weakness in domicile currencies explains the moderation elsewhere," he said.

There is however some tail risks from tensions in the Middle East, such as further political instability or unlikely currency devaluations, he added.

The growth rate of remittances will nonetheless slow down from a high base after years of continuous growth.

BSP recently revised its 2016 forecast from five percent to four percent, and "we expect growth to naturally moderate from there due to base effects."

As the economy expands alongside infrastructure build-up, the HSBC projection further revealed that the effect of remittances on growth and the current account will wane over time.

Also, services exports from business process outsourcing (BPO) and related sectors will partly offset the relative decline of foreign currency earnings from remittances, but the current account surplus may nonetheless weaken by 2017, unless the trade deficit sees a sustained improvement, which is unlikely, he added.

Demographic expansion suggests the Philippines will continue to have a surplus of workers over the next few years.

Remittances not only drive private consumption, which accounts for almost 75 percent of Philippine GDP, but keep the country's current account entrenched in surplus, offsetting the structural trade deficit. (FREEMAN)