HSBC sees OFW inflows growing 5.4% this year

MANILA, Philippines - British banking giant Hong Kong and Shanghai Banking Corp. (HSBC) expects remittances from overseas Filipino workers (OFWs) growing by 5.4 percent this year.

In a report, HSBC economist Trinh Nguyen said that the amount of money sent home by Filipinos overseas would remain strong, boosting private consumption and the domestic economy.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed remittances from OFWs went up by 5.4 percent to $6.543 billion in the first four months of the year from $6.21 billion in the same period last year.

The BSP sees OFW remittances climbing by five percent this year after growing by 7.2 percent to a new record level of $20.12 billion last year from $18.763 billion in 2010.

After expanding more than seven percent last year, Nguyen said total remittances decelerated to a year-to-date growth rate of 5.4 percent. For the same period last year, remittances rose six percent.

She pointed out that the slowdown in remittances in the first four months of the year reflects tough conditions in host countries especially the euro zone.

“The slowdown reflects challenging conditions in host countries, especially the euro zone where inflows contracted from January to March. However, given the typical resilient nature of Philippine’s remittance inflows, we still expect a 5.4 percent pace of expansion for this year,” she stressed.

She explained that robust OFW remittances together with higher government spending and recovering exports helped push the country’s gross domestic product (GDP) growth to 6.4 percent in the first quarter of the year from the revised four percent in the fourth quarter of last year.

“First quarter GDP expanded sharply on the back of increased government spending, strong remittances, and positive export growth. With remittances still robust and government spending continuing to rise, we expect domestic demand to stay strong in the second quarter,” Nguyen said.

According to her, inflation would remain within the BSP target of three percent to five percent, giving monetary authorities enough flexibility to keep interest rates at record lows this year.

“With the external environment looking challenging and inflation likely to stay on target this year, the BSP has room to keep rates low for the rest of 2012,” she said.

The BSP decided to keep interest rates at record lows last June 14 on the back of favorable inflation outlook.

The central bank has so far slashed rates by 50 basis points on the back of stable inflation and fragile global economic growth. This brought the overnight borrowing rate back to a record low of four percent and the overnight lending rate to six percent.

“Remittance inflows remain resilient, continuing to support private consumption in the Philippines. With remittances, government spending, and exports all expected to record positive growth for the rest of the year, domestic demand growth should remain healthy,” she said.