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RCBC Chief Economist Michael Ricafort (left) and ING Bank Senior Economist Nicholas Mapa
MANILA – Continued job losses among Filipino Overseas Workers (OFW) are expected to hurt remittance inflows to the Philippines until next year, with this year’s contraction expected to reach as high as 10 percent.
On Thursday, Bangko Sentral ng Pilipinas (BSP) reported on the reversal of remittance inflows last August, after cash inflows registered a year-on-year decrease of 4.1 percent following expansions from the 7 percent level in the previous two months.
In a report, Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort said that the diversification of OFW markets foresees the continued inflow of remittances, adding that as more workers lose their jobs, this would affect the remittances.
Ricafort said he was optimistic about the seasonal increase in inflows in the last quarter of the year due to the holidays, noting that “some negatively affected OFW could also take advantage of their savings” and “some OFW laid off could also take advantage (in) part of your severance pay. “
However, he said that inflows in the coming months “could still continue to contract year after year,” as long as OFWs who lost their jobs get them back or find another job in the same country or in another area.
“A positive offsetting factor is the fact that some OFWs work as cutting edge, especially in the health / medical sector and other essential industries, allowing some of them to continue working and sending remittances to the Philippines,” added Ricafort.
The BSP forecast that remittances will contract by 2 percent this year, an improvement over the previous forecast of -5 percent.
In the first eight months of the year, cash remittances channeled through banks registered a year-on-year contraction of 2.6 percent.
ANZ Research predicted that remittances to the Philippines will contract by 7 percent, as it projected that the inflow weakness shown in the August 2020 figures will continue in the coming months.
In a report, he said that the OFW diaspora supported the resistance of remittances, but since the pandemic has affected all countries, the inflows of Filipino workers abroad have also been affected.
He called the recovery of remittances in June and July exceptional, which was attributed in part to the reopening of economies, the general weakness of the US dollar that favors other currencies such as the peso, and fiscal support in the United States, which it accounts for a large part of remittance inflows to the Philippines.
However, with more OFW losing their jobs and being repatriated and the impact of the stimulus program in the US dissipates, which in turn results in slow disposable income in the world’s largest economy, ANZ Research forecast additional pressures on remittances.
The report cited BSP’s revision of the remittance forecast for this year, but ANZ Research predicted that remittances would fall 9.7 percent in the second half of the year.
“This will translate into an annual contraction of 7 percent year-on-year,” he added.
ING Bank Manila Senior Economist Nicholas Mapa predicted that remittances will decline by 5-10 percent this year “with OFs abroad still facing challenging labor markets in their jurisdictions (Covid-19 cases are increasing in Europe and the US) while the stock of OFs abroad is reduced by approximately 300,000 after large-scale repatriations. “
OFW remittances are among the structural drivers of the national economy in recent decades, as they drive consumer spending.
Mapa, however, said that the expected contraction in inflows from this year would affect domestic growth.
“The loss of support for remittances for household consumption is likely to feel good in 2021, weighing down prospects for growth recovery,” he added. (PNA)
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