Philippines remittance growth hits 15-month low

Blame the measly 4.2% growth on Eurozone and Middle East crises.

According to DBS, remittance growth slowed to a 15-month low of 4.2% YoY in June, dragged down by continued subpar growth in Europe and the Middle East. This translates into 5.1% growth in the first half of this year compared to the same period in 2011. Accordingly, this also implies that full-year remittance growth will be around 5-6% this year, a continued deceleration from 7.2% and 8.2% in 2011 and 2010 respectively.

Here's more from DBS:

In the short term, there are considerable headwinds to remittance growth amid a lackluster global economy. Moreover, the strong peso also mitigates the effectiveness of each USD of remittance inflows, resulting in less support for the domestic economy.

Structurally, remittance growth is unlikely to return to the double-digit growth rates seen from 2002-2008. At that point, growth was strong in the developed economies including the US and Europe (which together account for 58% of total remittances in 2011).

However, the heavy debt load in the two regions implies that economic growth will be constrained over the medium term. Asia remains a bright spot, but the region only accounts for 12.8% of total remittance and is unlikely to negate the remittance slowdown in the developed economies. Domestically, the economy has been performing very well and investment-led growth may be just around the corner.

Reforms made by the authorities, low debt levels and steps taken to address the high birthrate are all positive steps pointing towards faster economic growth. Working domestically may become more attractive to locals as employment opportunities grow. We suspect that remittances will slowly diminish in importance in the coming years.