Muted remittance growth seen to further dampen consumption

Muted remittance growth in the coming months will continue to dampen household spending in the Philippines, Pantheon Macroeconomics said.

“The support remittances are providing to private consumption in the Philippines remains sub-par,” it said in its weekly Emerging Asia economic monitor.

Pantheon Macroeconomics noted that the growth of remittance inflows  in peso terms slowed to 4.6% year on year in March from 5.3% in February.

However, average growth rose to 4.9% in the first quarter from 0.9% in the fourth quarter.

“But this was down solely due to currency effects rather than an actual improvement in US dollar transfers, a year-over-year lift that is more likely to wane than grow in the second half,” Pantheon Macroeconomics said.

It noted that remittance growth in peso terms is “now below the historical average for a 10^th consecutive month.”

“This underperformance is likely only to worsen, looking at the lackluster momentum since the start of the year,” it added.

Data from the Bangko Sentral ng Pilipinas (BSP) showed cash remittances rose by 2.5% to USD 2.74 billion in March from USD 2.67 billion a year ago. It was the slowest growth since 2.1% in June 2023.

In the first quarter, cash remittances grew by 2.7% to USD 8.22 billion from USD 8 billion a year earlier.

The BSP expects cash remittances to grow by 3% this year.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said it is still possible to meet the central bank’s remittance target this year.

“The higher US dollar-peso exchange rate by more than 4% since the start of 2024 and more than 13% over the past two years or since the Russia-Ukraine conflict started in February 2022 could help reduce the need to send more remittances, with more peso equivalent, that are also needed to cope with higher prices locally from the point of view of overseas Filipino worker (OFW) families,” he said. 

Cash remittances that fuel household spending, account for about three-fourths of the economy.

Private consumption grew by 4.6% in the first quarter, slower than 5.3% in the previous quarter and 6.4% a year ago. This was the slowest since the 4.8% drop in the first quarter of 2021. — L.M.J.C.Jocson