Remittance rebound expected in Q4, analysts say

THE decline in cash remittances in September is unlikely to persist, bank analysts said, with inflows likely to recover during the fourth quarter, further fueling consumer spending.

“[ W]e see a snap back in Q4 as falls in remittances do not tend to persist,” Nomura Global Research said in a market report published yesterday.

“We continue to believe remittances will be resilient owing to the geographical diversification of workers, which are also increasingly higherskilled.”

Remittances posted an 8.3% drop in September to $2.186 billion, which the Bangko Sentral ng Pilipinas (BSP) attributed to derisking among global banks handling money transfers, as well as the repatriation of undocumented workers from Saudi Arabia.

The amount is the lowest since the $ 2.083 billion total in April, and posted the steepest fall in over a decade since a 10.9% decline in April 2003. Some 8,467 Overseas Filipino Workers ( OFWs) availed of the extended amnesty program offered by the Saudi Arabian government since March, which allowed them to return home without penalty.

Nomura economists Euben Paracuelles and Lavanya Venkateswaran said they continue to expect remittances to grow by 5.5% for the entire year, poised to beat the 4% forecast of the BSP.

Money sent home by OFWs totaled $ 20.781 billion as of end- September, up by 3.8% from $ 20.025 billion the previous year, the central bank said. However, the analysts said the value of remittances continues to grow when expressed in peso terms, with real remittances up by 7.6% year on year against the 7.8% growth rate a year earlier.

The peso traded at the P51 level that month, averaging P51.0094 against the dollar. This meant that amounts sent home by OFWs are worth more when converted into pesos.

The sustained strength in real remittances will prop up domestic consumption and ultimately, gross domestic product ( GDP) growth, which has averaged 6.7% for the first three quarters. The government is targeting a 6.5-7.5% expansion for 2017.

Remittances support household spending, the biggest driver of economic activity.

Domestic consumption growth eased to 4.5% during the quarter, the Philippine Statistics Authority said yesterday, although upbeat government spending pushed demand- side effects for the period.

Still, remittance inflows will continue to temper the impact of a wider trade gap, Nomura said, with the current account balance seen settling at a deficit of 0.2% of GDP.

Jose Mario I. Cuyegkeng, senior economist at ING Bank N.V. Manila, said the derisking trend observed among global correspondent banks may have left Filipinos abroad with fewer channels to remit, but said that they are expected to find new platforms to send money home.

“The derisking by global correspondent banks is in response to anti- money laundering and counterterrorist financing regulations… We expect the ingenuity of Filipinos to send vital remittances to their families in the Philippines to overcome the derisking impact,” the bank economist said.

Mr. Cuyegkeng said remittances will likely recover during the last three months of the year to pull up the figure to four to 4.5% higher from 2016’s $ 26.9 billion.

Remittances usually peak in December as OFWs send more cash to their families to spend for the Christmas season.