MANILA, Philippines — The harder times wrought by the prolonged COVID-19 pandemic have forced more households — including those receiving cash remittances from overseas Filipino workers (OFWs) — to save instead of splurge, resulting in slower economic recovery due to weak domestic consumption, UK-based think tank Pantheon Macroeconomics said.
In a report on Monday, Pantheon Macroeconomics senior Asia economist Miguel Chanco noted that remittance inflows beat expectations in July as these grew 2.5 percent to a seven-month high of $2.85 billion, defying most economists’ expectations of a year-on-year decline.
Chanco also noted that month-on-month, July remittances inched up 0.4 percent compared to inflows in June, when many OFWs usually send money back home to be spent on their children’s education ahead of the opening of classes.
The latest Bangko Sentral ng Pilipinas (BSP) data showed that end-July remittances rose 5.8 percent year-on-year to $17.77 billion.
“The recent momentum has largely been on the back of transfers from the United States, where the job market is holding up in the face of Delta pressures,” Chanco said.
Weaker peso
“For the first time since 2019, inflows in peso terms are rising faster—which matter more for domestic demand— due to the currency’s recent sell-off,” he added, referring to the weaker peso.
But Chanco said these cash remittances “still aren’t rising fast enough to give meaningful support, and the deteriorating COVID-19 picture locally implies that remittances are more likely to be saved than spent.”
Chanco earlier on pointed to the declining proportion of consumers who held off from big-ticket purchases like vehicles and property amid the pandemic, as reflected in the BSP’s quarterly consumer expectations survey (CES).
Chanco had also noted that while many households intended to save more money for a rainy day, some cannot afford to keep savings due to high unemployment as a result of prolonged quarantine restrictions and the pandemic-induced economic slump.
It did not help that consumer prices have been elevated, and may even go higher in coming months.
Chanco said in a report last week that headline inflation could end 2021 above 6 percent, or way faster than the BSP’s 2-4 percent target range.
He noted that the 32-month high 3.9-percent inflation rate in August mainly came on the back of the six-month high 6.5-percent food inflation.
“This reacceleration has further to run, as the country has yet to feel the full force of the surge in global food inflation, which leads by about half a year. To be sure, prices internationally are now starting to cool, but this is unlikely to filter through until the turn of the year,” Chanco warned.
“Similarly, the pass-through effects of the recovery in global oil prices to date are far from over … Housing and utilities inflation still has plenty of room to catch-up, with its rising contribution to headline inflation set nearly to double heading into early 2022,” he added.
Chanco projected the rate of increase in prices of basic commodities to hit 5.2 percent year-on-year in September and 6.5 percent by December.