Philippines: Remittances Revert To Contraction In August

Pent-up remittance flows fade while the number of overseas Filipinos declines after widespread repatriation.

Source: Shutterstock

August remittances back in contraction

The Philippine remittance bounce finally gave way with inbound dollar flows reverting to a contraction in August, moving against market expectations to fall by 4.1%.  For the two months prior, overseas Filipinos (OFs) managed to send home much-needed funds post-lockdowns in their jurisdictions, helping bolster remittances back into expansion for June and July.  Meanwhile, large-scale repatriation of OFs also led to foreign-based Filipinos sending home lifetime savings via formal channels prior to their return to the Philippines.  By August, pent-up flows finally faded with Filipinos facing challenging labor markets abroad while the stock of OFs declined significantly, resulting in the contraction.

Overseas Filipino remittance growth

Source: Bangko Sentral ng Pilipinas 

GDP recovery prospects weighed down by remittance outlook

In the coming months, we expect remittance flows to see directional trading but end the year down by 5-10% with OFs abroad still facing challenging labor markets in their jurisdictions (Covid-19 cases are on the rise in Europe and the US) while the stock of OFs abroad falls by roughly 300,000 after the wide-scale repatriations.  The loss of remittance support to household consumption will likely be felt well into 2021, weighing on prospects for a quick economic recovery.  Meanwhile, the PHP may finally come under some pressure by 1H 2021 with import demand expected to bounce at a time wherein structural flows from remittances and business processing services remain fragile.