Philippines: Robust Remittances Bode Well for Strong Q2 Growth

Consensus Forecasts

The Philippine economy, which is primarily driven by domestic demand, likely continued to show vigour during the second quarter, judging by latest data for remittances. Money sent home from abroad by Overseas Filipino Workers (OFW) is a key driver of domestic consumption, and continued strong growth in this area bodes well for the domestic economy. Indeed, remittance inflows hit a 5-month high in May to reach Peso1.86bn, an increase of 5.3% from a year earlier. The latest reading took the total figure for the January-May period to Peso8.78bn, which amounted to an annual rise of 5.6%. For the full year, the government is targeting growth in remittances of 5.0%, a figure which has already been surpassed in the first five months of this year. Strong growth in remittances has been partly reflected in the M3 money supply soaring by 20.3% (y-o-y) in June, the fastest rate of expansion in six years. Furthermore, sustained remittance inflows also contributed to the US$692mn balance of payments surplus during the same period, which was the highest reading in five months. Consensus GDP growth forecasts for 2013 have stayed firm this month.

Despite continued signs of robust domestic activity, inflationary pressures remain well anchored. July’s report showed that consumer price rises moderated to 2.5% (y-o-y) compared to 2.7% in June and 2.8% in May. The improved reading came on the back of lower prices for most basic commodities. With the official target at 3.0-5.0% for this year, inflation now looks well on course to hit the lower end of this range.

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