Remittances from overseas are expected to be less important to the Philippine economy “in the coming years” as improving job prospects in the country may dissuade Filipinos from leaving, according to DBS Group.
The financial services provider said in a research note that the domestic economy had been performing “very well” and that investment-led growth may be forthcoming.
The Singapore-based firm cited government reforms, low debt levels and steps taken to address the high birth rate as “all positive steps” that point to faster economic growth.
“Working domestically may become more attractive to locals as employment opportunities grow,” DBS said. “We suspect that remittances will slowly diminish in importance in the coming years.”
The group also noted that the sluggish economy in Europe and the Middle East pulled down the growth of remittances to the Philippines to a 15-month low of 4.2 percent year on year in June.
“Accordingly, this also implies that full-year remittance growth will be around 5 percent to 6 percent this year, a continued deceleration from 7.2 percent and 8.2 percent in 2011 and 2010, respectively,” DBS said.
“In the short term, there are considerable headwinds to remittance growth amid a lackluster global economy,” it added.
Further, DBS said that the strong peso also mitigates the effectiveness of each dollar of remittance inflows, resulting in less support for the domestic economy.
The group said that the growth of remittances to the Philippines was unlikely to return to the double-digit growth rates seen from 2002 to 2008 when growth was strong in the developed economies including the United States and Europe.
Together, these two major markets accounted for a combined 58 percent of total remittances in 2011.
“The heavy debt load in the two regions implies that economic growth will be constrained over the medium term,” DBS said.
“Asia remains a bright spot, but the region only accounts for 12.8 percent of (global) total remittance and is unlikely to negate the remittance slowdown in the developed economies,” it added.