Slowing PHL remittances may weaken consumption

PHILIPPINE domestic demand could ease this year as remittance inflows are muted by reduced overseas hiring, Pantheon Macroeconomics said.

“Domestic demand in the Philippines is continuing to struggle, reflecting in large part the oppressive headwinds facing consumers,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco and Senior Asia Economist Moorthy Krshnan said in a report.

It noted that remittances, which have slowed this year, might fail to boost domestic demand in the coming months.

“Remittances have saved the day in the past, such as in 2022, when they helped to fuel the post-pandemic release of pent-up demand,” according to the report.

Filipino consumers, who have been battling rising prices of commodities such as rice, meat and oil, rely heavily on remittances sent home by relatives abroad.

“We see no prospect of this savior making a comeback in 2024, if the first two months of the year are anything to go by,” Pantheon said.

Cash remittances in February rose by 3% to $2.65 billion from a year earlier. It fell by 6.7% month on month.

“The year-over-year increase — in local-currency terms — would fall back into the red in the middle of this year if this rate of growth persists,” it said.

Pantheon also noted that overseas placements, which slowed to 28% year on year in January and have dropped since early 2021, could also affect remittance flows.

Borrowing remains a driver of household spending, as consumer credit remained above average since late 2022, Pantheon said. It jumped to 25.2% in February, as credit card and motor vehicle loans rose by 30.1% and 19.1%, respectively.

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Pantheon said rampant borrowing is “fundamentally unsustainable and likely to result in a more painful payback for the economy down the line.” A “climbdown” in consumer credit is likely to take place this year, it added.

Based on Pantheon’s computations, the share of Philippine households with savings recovered “only modestly” to 31.9% in the first quarter from 30.1% a quarter earlier.

“Meanwhile, the proportion of those who could set aside any savings has seen lower lows and lower highs in the past two surveys,” it added.

Philippine unemployment dropped to a two-month low of 3.5% in February, which is expected to offset still-rampant borrowing and lower remittances. But Pantheon said the downtrend in job openings is a risk.

Pantheon said Philippine gross domestic product (GDP) growth in the first quarter was likely one of the fastest in the region at 5.8%, behind Taiwan (6.1%) and ahead of Indonesia (5%) and Singapore (2.7%).

The Philippines would outpace its peers in the second quarter with 6.2% GDP growth, over Indonesia (4.4%), Taiwan (3.6%) and Singapore (2.6%), it added.

The Philippine Statistics Authority will release first-quarter GDP data on May 9.

Inflation could quicken to 3.8% in June before cooling to 2.7% in September, but could speed up to 3.1% in December, Pantheon said.