Remittances seen to sustain growth in 2014

MANILA, Philippines – The inflow of remittances from Filipinos abroad expected to remain strong this year on the back of continuing global and local economic growth, Standard Chartered Bank said in a research note.

“We expect remittance growth to accelerate in 2014 from the six-percent growth in the first 10 months of 2013. Global growth is expected to improve to 3.5 percent in 2014 from 2.7 percent in 2013, and it is likely that the Philippines will benefit from increased remittance inflows from two of its major sources – the US and Europe,” Stanchart said.

“Our models show a significantly strong relationship between nominal GDP growth and remittance growth from most countries, indicating that higher GDP growth will boost the income and remittance levels of overseas Filipinos. Along with near-term increased inflows following Typhoon Haiyan (Yolanda), we expect an increase in remittance growth in 2014,” it added.

The sustained remittance growth, it said, is also expected to support domestic consumption.

“While real household consumption has been stable over the past few years, it masks the correlation, because household consumption is measured in Philippine pesos. We would see a stronger correlation between nominal household consumption and remittances if we compare them using one currency, preferably the US dollar,” it said.

Stanchart global research noted that the country’s current account surplus would remain resilient in 2014 on stronger remittance growth.

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“The remittance dynamic may be more muted for the peso, given that the financial account constitutes the bulk of annual volatility in the overall balance of payments (BoP). We maintain our neutral short- and medium-term weighting for the peso, as we think that more benign global financial market conditions could lead to a modest Philippine rebound later in 2014,” it said.

“We also expect stronger global growth to boost the incomes of Filipinos overseas and thus their ability to remit more to the Philippines,” the global research arm of Stanchart said.

It said the bank expects global growth to accelerate to 3.5 percent in 2014, versus our forecast of 2.7 percent in 2013, owing mainly to stronger growth in the US and Europe.

“Remittances from the US made up 43.4 percent of total remittances in and those from Europe made up 17.7 percent. Considering the trend since 2007, we believe these have significant potential to increase. Our regression analysis shows that remittance growth has the strongest correlation to nominal GDP growth, rather than to inflation and exchange rates, where the results are mixed. We estimate a 1.5 to two percentage points increase in remittance flows, largely on increased inflows from the US and Europe, in 2014,” it said. –Donnabelle L. Gatdula (The Philippine Star)