Rise in remittances expected to slow down

JPMorgan Chase & Co. headquarters on Park Avenue, New York. AP file photo

American bank JP Morgan Chase expects the rate of rise of the money sent home by overseas workers—a key driver of economic growth—to slow down to 5.2 percent this year.

Citing the latest central bank data, a JP Morgan analyst said remittances in May expanded by a faster pace of 5.4 percent year-on-year, but the growth was less than the market consensus of 5.7 percent. On a month-on-month seasonally adjusted basis, remittances declined by 0.2 percent to $1.965 billion from 2.9 percent in April.

As a result, remittances from overseas Filipino workers (OFWs) declined by 7.4 percent on a seasonally adjusted basis quarter-on-quarter. This was mildly better than the 10.9-percent contraction seen in the preceding two months, Singapore-based JP Morgan economist Matt Hildebrandt said in a research note dated July 15.

“With five months of data reported, remittances were up 5.7 percent year-to-date over the same period last year,” Hildebrandt said.

As remittance growth averaged a strong 14 percent quarter-on-quarter seasonally adjusted, the economist said that “more modest remittance growth in the second half of 2014, compared to last year, would leave full-year remittance growth lower than the current year-to-date figure.”

Because of this, he said, JP Morgan believes that full-year Philippine remittance growth will only hit 5.2 percent this year—weaker than the 7.4 percent reported last year.

“Portfolio and other flows in the financial account have become more important in recent years, but the current account remains the main driver of the BoP (balance of payments),” Hildebrandt said.

“Not surprisingly, we expect steady remittance inflows, along with BPO (business process outsourcing) service exports, to remain the backstop of a sizable, albeit slightly narrower, current account surplus in 2014 despite our expectation for the Philippines’ trade deficit to widen modestly on the back of strong domestic demand and reconstruction and rehabilitation from Typhoon Haiyan (locally known as Yolanda),” he added.

JP Morgan expects the Philippines to end this year with a current account surplus equivalent to 3.1 percent of gross domestic product, slightly lower than the 3.4 percent seen last year. The trade deficit may widen to 7.2 percent from 6.7 percent of GDP last year.