Good news, lingering doubts

PHILIPPINES - In Brief 27 Oct 2020 by Romeo Bernardo

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Amidst a succession of GDP growth downgrades, most recently by the IMF,[1] we are watching three developments this month that signal better prospects heading into 2021.Remittances have surprised on the upside. Monies sent home have expectedly declined but not as much as anticipated. After plummeting by double digits yoy in April and May, the inflows rebounded in June and July, each by nearly 8%, then slipped again in August but only by 4%. For the six-month period since the pandemic (from March to August), remittances fell moderately by 5% yoy, bringing the year to August decline to only 2.6%. This is good news considering that in our last outlook report, we were expecting a 7% contraction for the year.What appears to be driving the stronger than expected remittances are inflows from countries that have large Filipino migrant populations (U.S. and Canada) where the respective governments have also provided generous fiscal support, including wage subsidies (e.g., U.S., Singapore), and/or have managed the outbreak relatively better (e.g., east Asian economies). Too, despite the bust in cruise tourism, remittances from seafarers have also performed better that expected due to improved trade volumes in 3Q. (Charts 1 and 2).Nevertheless, there are still significant downside risks moving forward with several host countries facing a resurgence of covid19 (including the U.S. and in Europe) that risks keeping unemployment high for longer, and the prospect of continuing low oil prices[2] weighing down oil exporting economies, particularly in the Middle East which host many overseas Filipino workers. At the same time, remittances may come under renewed pressure as fiscal packages...