Remittances from overseas Filipino workers will drive the Philippine economy further this year as the peso’s weakness, viewed apart from its negative impact on inflation, should boost the value of the dollars sent back home by the OFWs, analysts said.
The money received by families of the Filipino workers abroad should also sustain robust growth in the country’s gross domestic product (GDP) on the back of what the government sees as stable demand overseas for Philippine labor skills.
Most analysts believe the remittance money received by families of the Filipino workers should largely keep the domestic economy from slumping after a sharp slowdown in economic growth in the first quarter of 2015.
GDP growth slackened in the first three months of this year to 5.2 percent from 6.6 percent in the fourth quarter of 2014 and 5.6 percent a year earlier. The government has a GDP growth goal of 7 percent to 8 percent this year.
“Higher remittances, and now, a higher translation into the local currency as the dollar strengthens globally, should provide a boost to consumer spending,” said Justino Calaycay Jr., analyst at Accord Capital Equities Corp.
To date, the Philippine currency has lost strength to hit its weakest level in five years against the US dollar.
Peso slips to new 5-yr low of P46.35:$1
The Philippine peso closed Tuesday’s trade at P46.35:$1, losing a further 3 centavos from its previous close of P46.32:$1 on Monday. Tuesday’s close marks the weakest finish for the local unit since July 22, 2010, when it stood at P46.49 to the greenback.
Jonathan Ravelas, chief market strategist at Banco de Oro, said prospects of an improving US economy and the potential policy normalization in US interest rates supported the US currency.
Ravelas said regional currency adjustments following the yuan’s depreciation also strengthened the US dollar.
“Near-term risk lies at P46.50:$1,” he added.
The peso opened at P46.38 to $1 on the Philippine Dealing System (PDS) on Tuesday before trading between P46.32:$1 and P46.39:$1.
Total volume transacted on the PDS rose to $468 million from $421 million in previous trading.
A sign of poor job creation
The latest data from the central bank showed personal remittances by OFWs rose 5.8 percent year-on-year to $2.41 billion in June, resulting in a first half-inflow of $13.37 billion, up 5.3 percent from $12.7 billion a year earlier.
Cash remittances, or those coursed through banks, grew 6.1 percent year-on-year to $2.18 billion in June, bringing the cumulative inflow in the first six months of 2015 to $12.08 billion.
The Bangko Sentral ng Pilipinas (BSP) stressed that demand for skilled Filipinos abroad continued to be stable as data from Philippine Overseas Employment Administration showed 454,263 job orders were approved in the first six months of 2015.
Calaycay, however, pointed out that the latest remittances figure is a telling blow to the government’s claim that enough jobs are being created domestically.
According to the Labor Force Survey of the Philippine Statistics Authority, the employment rate in April stood at 93.6 percent, involving a total of 39.16 million jobs, up 1.26 percent from 38.66 million generated a year ago.
“Or if the absolute numbers are true, the salary gap remains too wide and the poverty level too high, so that our compatriots continue to look outward for opportunities; much work remains to be done in this regard,” he said.
Sharing the same view are analysts from United Kingdom-based investment bank Barclays, who said that the peso value of remittances is likely to support economic activity in the remaining months of 2015.
“The recent weakness in the Philippines peso should help in boosting private consumption through the remittances channel. While headline remittances growth may be modest, the weaker peso implies that the converted value of remittances is likely to be higher, which should support activity in second half,” Barclays analysts said in a note to clients.