Cash remittances may post slowest growth since pandemic this year

By Katherine K. Chan, Reporter

CASH REMITTANCES could post its slowest growth since the pandemic this year as overseas Filipino workers (OFWs) are affected by heightened geopolitical risks arising from the Middle East war, Maybank Investment Bank said.

In a report on Monday, Maybank Chief Economist Suhaimi Ilias and economist Azril Rosli said they now expect Philippine cash remittances to rise by 2.2% to $36.4 billion by end-2026, slower than their earlier projection of 2.4% to $36.5 billion.

If realized, this would be the slowest remittance growth since 2020, when it contracted by 0.8% to $29.903 billion. This is also weaker than the Philippine central bank’s 2.7% growth projection for cash remittances this year.

The Maybank economists noted that remittances may be losing momentum as global conditions become more uncertain as the Middle East war remains unresolved.

“Downside risks from heightened geopolitical tensions, particularly in the Middle East, remain elevated and could contribute to greater month-to-month volatility,” Mr. Ilias and Mr. Rosli said.

In June, cash remittances climbed by 1.7%, the slowest pace recorded in over four years, to $3.039 billion from $2.987 billion in the same month last year. However, the monthly level stood at a six-month high.

In the first half, remittances jumped by 2.4% to $17.149 billion, from $16.753 billion a year ago.

“This suggests that underlying remittance flows remain intact despite softer growth momentum and a challenging external environment,” the Maybank economists said.

Mr. Ilias and Mr. Rosli noted that OFWs’ wide array of host countries and relatively stable labor demand overseas have cushioned remittance flows against global economic and geopolitical risks.   

“Collectively, the broad-based positive growth across major source markets points to continued resilience in remittance dynamics,” they said.

“Although headline growth has softened, the diversification of remittance sources remains an important buffer against external shocks, helping sustain overall OFW remittance inflows amid heightened global uncertainty,” they added.

Bangko Sentral ng Pilipinas (BSP) data showed Filipinos based in the United States continued to send the bulk (39.4%) of the total cash remittances in the first half, with large inflows also recorded from host countries in the Middle East, Asia, and Europe.

Inflows from Singapore made up 7.2% of the total cash remittances during the period, followed by Saudi Arabia (6.3%), Japan (5.1%), the United Kingdom (4.8%), the United Arab Emirates (4.4%), Canada (3.3%), Qatar (3%), Taiwan (2.8%), and South Korea (2.8%).

Still, the Philippines will likely see a slow pace of expansion in remittances throughout the year as global economic conditions remain tight and geopolitical uncertainties persist, according to Mr. Ilias and Mr. Rosli.

REMITTANCE-TO-GDP
Meanwhile, BSP Deputy Governor Zeno Ronald R. Abenoja told BusinessWorld on Monday that the consecutive year-on-year slowdown of remittance inflows might have a near-term effect on economic growth.

However, they are still looking to establish if the recent easing of inflows already constitutes a trend.

The BSP will also revisit its full-year remittance forecast next month to account for their updated outlook on global developments including the Middle East war, Mr. Abenoja added.

The BSP’s latest projection showed cash remittance growth could slow to 2.7% to $36.6 billion this year, from the 3.3% increase to $35.6 billion last year.

In the second quarter, cash remittances made up 7.1% of the country’s gross domestic product (GDP), the same ratio logged a year ago but slightly lower than the 7.4% in the previous quarter.

Meanwhile, personal remittances accounted for 8% of the second-quarter GDP, down from 8.2% in the first quarter but slightly higher than 7.9% a year earlier.

Ser Percival K. Peña-Reyes, senior research fellow at the Ateneo Center for Economic Research and Development, said if remittances’ share in the country’s GDP continues to decline at the same degree over the next two quarters, economic growth could be trimmed by as much as 0.3 percentage point.

He noted that remittances typically fuel household consumption, which accounts for over 70% of the country’s GDP.

“If the Middle East conflict continues to restrain OFW income growth and the remittance-to-GDP ratio slips toward 6.8% in H2, one could view it as a modest downside risk of roughly 0.2 percentage point to full-year GDP growth, with perhaps 0.3 pp as a more adverse case,” Mr. Peña-Reyes told BusinessWorld via Facebook Messenger.

“It would likely show up first in consumption-sensitive sectors such as retail, housing-related spending, and other services,” he added.

However, Mr. Peña-Reyes noted that a lower remittance-to-GDP ratio could simply reflect GDP growth outpacing remittances, rather than an actual decline in remittance inflows.

“In other words, the more concerning scenario is persistent low-single-digit or near-zero remittance growth, rather than simply the ratio moving from 7.1% to 6.8%,” he added. “That would weaken one of the country’s most reliable supports for household demand and make an already-soft growth outlook more vulnerable.”

In the second quarter, GDP expanded by 2.3% — the slowest growth since the pandemic, which brought first-half growth to 2.6%. This comes as household spending growth weakened to a post-pandemic low of 2.8% in the April to June period.

The government wants to achieve 3.5%-4.5% growth this year, which means it has to grow by at least 4.4% to hit the bottom end of the target range.