Lower remittances to cut consumer demand in RP

MANILA, Philippines - Besides hurting consumption, lower remittances will also discourage investment, a Hong Kong-based economist of a global banking giant said. “The slowdown in remittances" will affect investment, “especially in residential real-estate," Hongkong and Shanghai Banking Corp. (HSBC) Ltd. senior economist Frederic Neumann said in a research note dated March 16. Declining remittances are “set to weigh on domestic demand generally," Neumann said. Although Filipinos working abroad sent less money during the first month of the year, sea-based workers kept remittances afloat amid a slowdown that has displaced land-based workers in the United States. Remittances managed to grow by 0.1 percent year-on-year to $1.27 billion from $1.26 billion “despite the challenging external environment," Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. said. However, this growth was slower than the 15 percent posted in 2007 from $1.1 billion in 2006. For January this year, major sources of remittances were the US, Saudi Arabia, Canada, Singapore, Japan, UK, Italy, and United Arab Emirates. Moreover, lower remittances indicate that the Philippine economy is “evidently not immune to growing financial stress elsewhere and rapid deceleration in world growth," Neumann said. Since money sent home by Filipinos working abroad is the "biggest supporting pillar of the country’s private consumption, remittances would "mark a significant contraction this year amid a synchronized recession in the developed world and a significant deceleration in Middle East growth," he said. For its part, a Singapore-based lender said that the Philippines’ consumer spending is "vulnerable to the vagaries of the outside world" as remittances will likely fall by 15 percent. The Development Bank of Singapore (DBS), one of Southeast Asia’s largest, expects consumer spending to decline to 4.3 percent this year from 4.5 percent in 2008, the lender said in a second quarter report dated March 12. "This year, however, we think remittance flows are set to contract sharply, as economic conditions in key host countries also deteriorate. Of these, DBS estimates that gross domestic product (GDP) in the US, Japan, Hong Kong and Singapore – they account nearly 60 percent of flows- will contract by a sharp 3.3 percent this year. Eyeballing this against remittance growth suggests that a 15 percent drop in remittance this year is entirely plausible," DBS said. However, DBS does not expect the drop in remittance to result in a "persistent current account deficit within the balance of payment (BoP)." BoP is the amount left after the country’s imports – including financial outflows – are subtracted from its exports. - GMANews.TV