Citigroup expects remittance inflows to drop dramatically this year

MANILA, Philippines - Citigroup expects the growth in remittance inflows to drop dramatically to three percent in 2009 from 13 percent last year as a result of wage cuts and job losses in the overseas job market.

Citi said in a report that although remittances were strong even at the end of 2008 when overseas economies have begun hurting from the global slowdown, there were signs of dimming prospects.

Citi noted that while remittances in December looked “decent”, the growth rate had actually slowed down and there was a headcount loss of 5.8 percent.

The government is counting on labor demand in countries like Canada, Australia and Qatar to pick up some of the slack in other labor markets but Citi said this might not be enough.

For the whole of 2008, the Bangko Sentral ng Pilipinas (BSP) reported that remittances from overseas Filipinos surpassed all expectations, summing up to a total of $16.4 billion, with monthly inflows consistently going over $1 billion throughout the year.

The full-year data from the BSP showed that cumulative remittances of overseas Filipinos coursed through banks for 2008 was 13.7 percent higher than the level recorded in 2007 and slightly above the BSP’s growth forecast of 13 percent or $16.3 billion.

But Citi said its projections showed only a three percent growth – dramatically slower but still better than earlier projections made by Hongkong Shanghai Banking Corp (HSBC) which is expecting remittances to decline by a whopping 20 percent this year.

Citi said the slowdown in growth would be the result of slower incremental growth as well as the actual decline in job deployment overseas that could flag remittance weakness.

“We do not rule out potential wage cuts in line with increasing slack globally on the back of US job cuts, oil price lows threatening Middle East growth prospects and global trade collapse in Asia,” Citi analyst Johanna Chua.

But Chua pointed out that the incremental increase could also be downplayed because it would be off a high base in 2008, adding that the highs and lows during the year were more relevant, with the June total as the month to beat.

In June 2008, remittance inflows amounted to $1.45 billion. Following this peak, Chua said monthly remittances hovered between $1.3 billion and $1.4 billion in the second half of 2008.

“Monthly remittance value below this range in 2009 could suggest a combination of headcount loss, overseas wage cuts and less payment from migrant Filipinos for onshore residential purchases,” Chua said.