OFW remittances buoyed by improving US economy — HSBC

REMITTANCES by overseas Filipino workers (OFWs) are expected to remain on the rise and fuel further domestic spending in the Philippines, boosted by improving economic prospects in the United States, the Hong Kong and Shanghai Banking Corp. (HSBC) said.

In a report, the global bank said OFW remittances are expected to sustain domestic consumption, which in turn will prop up the country’s growth momentum.

In particular, the bank economists said remittances are likely to get a boost from an improving US economy, the biggest source of money transfers.

Cash sent home by Filipinos working in the US amounted to $8.067 billion as of end-November, equal to a third of the $24.341 billion in total remittances during the period.

US remittances rose 5.3% from a year earlier, while total remittances posted a 5.2% rise, according to central bank data.

Remittances are expected to benefit from the faster growth of the US economy, in light of hints of stronger job creation coupled with a fiscal stimulus planned by new President Donald J. Trump.

Prior to assuming the post on Jan. 20, Mr. Trump promised tax cuts and increased infrastructure spending to spur economic growth in the US, alongside some “protectionist” policies that seek to curb immigration and foreign outsourcing.

“In the Philippines, further support to consumption will continue to come from remittances by overseas Filipino workers. Indeed, should US economic growth accelerate to 2.3% in 2017 and 2.7% in 2018 as we expect (from 1.6% in 2016), remittances could receive a larger boost, not only from potentially stronger OFW wages, but also a more favorable exchange rate as the US dollar appreciates,” the HSBC report read.

The bank currently forecasts the Philippine economy to grow by 6.5% for 2017 and 2018, which will be slower than the 6.8% registered last year. The forecast is still within the government’s 6.5-7.5% growth target range.

Strong household spending is expected to remain a key growth driver, fueled largely by rising disposable incomes held by companies.

“Consumption in the Philippines is projected to be even faster, at 7.1% — rather impressive, considering it is only a slight moderation from last year’s electiondriven surge of 7.3%,” HSBC said. “Very little of the consumption growth… will be driven by household debt, which is set to remain below 20% of GDP. Instead, consumption will continue to be supported by a robust labor market and wage conditions, which have been tightening for some time.”

Money sent home by OFWs helps boost domestic consumption, which in turn accounts for nearly a 10th of GDP.

However, other economists have said that the Philippines is one of the countries at risk due to Mr. Trump’s “America first” policy, as it had the potential to affect OFW deployment and could hurt the BPO sector.

Apart from consumer spending, HSBC said the sustained doubledigit growth in investment could also keep economic growth above 6%, riding on the government’s infrastructure push over the next six years.

“Fortunately, fiscal consolidation in recent years will allow the government to pursue fiscal expansion, and low public debt levels suggest this spending is sustainable for now. The government is also hoping to accelerate public-private partnership projects to co- opt more financing from the private sector,” the bank economists added.

The government has earmarked P847.2 billion for public infrastructure projects this year, equal to 5.3% of GDP. Budget secretary Benjamin E. Diokno has said that the government plans to spend as much as P9 trillion until 2022 on infrastructure, with the goal of raising its share to 7% of GDP. —