REMITTANCES are expected to grow 5.2 percent this year, bucking the effects of external headwinds such as declining oil prices, slower global growth and financial market volatility, Nomura Global Economics said in a report.
Nomura conducted a survey of migrant Filipino workers and found out that a number of structural factors could mitigate the risks to remittances, especially from workers in the Middle East—one of the major sources of money sent home by them.
“… We have observed increased geographical diversification of remittances in recent years, an increased proportion of the contribution from more skilled workers in service sectors with strong demand and higher per-capita remittances reflecting a higher proportion of higher income workers. We conducted a survey of overseas-based Filipinos to support these findings,” Nomura said.
“Overall, we continue to forecast a current account surplus of around 3.7 percent of GDP in 2016 from 4.0 percent in 2015, and expect OFW remittances to grow by 5.2 percent y-o-y in 2016… ,” Nomura said. The forecast is higher than the Bangko Sentral ng Pilipinas’ target of 4-percent growth for remittances this year.
Latest Bangko Sentral data showed that remittances last year grew 4.6 percent to a record $25.767 billion from $24.628 billion year-on-year, surpassing the 4-percent growth projection for the year.
Cash remittances in December expanded 4.9 percent to $2.47 billion from $2.35 billion a year ago, also the biggest monthly inflow on record.
“Global developments in recent months have increased the pressure on the Philippines’ balance of payments and on Philippine peso. These include increased financial market volatility and continued concerns over China’s economic slowdown, the impact of policy normalization from the Fed and worries over the impact of lower oil prices, particularly on overseas Filipino worker remittances,” Nomura said.
It said the adverse developments resulted in material capital outflows from foreign and domestic investors and a flight-to-safety into US dollar bonds.
Philippine equity markets also experienced outflows, possibly exacerbated by valuation concerns amid global risk-aversion.
“With our US economics team’s forecast of two more interest rate hikes from the Fed in 2016 and our below-consensus forecast for China’s growth [5.8 percent in 2016], the risk is that subdued risk appetite may continue to pressure the Philippines’ BOP via capital outflows,” Nomura said.
It said the Philippines appeared to be a victim of its own success: strong investment spending has kept capital goods imports elevated while higher tourism imports (Filipinos traveling overseas) have increased, possibly due to higher per-capita incomes.
Nomura said investors were particularly concerned on the impact of lower oil prices on remittances, given that 2 million Filipino workers based in the Middle East.
“However, we believe that these concerns are overblown. Filipino workers in the Middle East who are most prone to layoffs are the semi/low-skilled workers with relatively low per-capita remittances. In addition, the terms-of-trade benefits help to offset the potential impact of lower oil prices on remittances,” Nomura said.