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Remittances to support growth

OXFORD Economics, a think tank based in the United Kingdom, projects solid remittance inflows for the Philippines this year that will help the country attain its growth targets.

“Our healthy outlook for remittances also supports our above-trend GDP (gross domestic product) growth outlook in 2022 and 2023, at 7.5 percent and 7 percent, respectively,” it said in a report released on Friday.

The 2022 and 2023 growth outlooks are within 7 to 9 percent and 6 to 7 percent targets set by the interagency Development Budget Coordination Committee for the said years. In addition, the forecasts are faster than the 5.6-percent GDP growth posted in 2021.

Oxford Economics said remittances growth will increase to 5.4 percent in 2022 from an estimated 4.9 percent in 2021, then moderate to 4.3 percent in 2023.

“OFWs (overseas Filipino workers) will continue to follow the spirit of altruism and while the global economy and the US are set to slow over 2022-2023, growth will still be above-trend,” it said.

The think tank added that it is also a plus that the peso has depreciated modestly in the first quarter, as it will increase the amount received in local currency, highlighting that a recurrence of 2020, when remittances in peso terms were diluted, is unlikely.

The direct income support from remittances, it underscored, will enhance private consumption and residential investment, both of which are anticipated to be significant drivers of growth over the next two years as the economy continues to recover amid a rising vaccination rate.

Oxford Economics said it private consumption is likely to pick up by 7.3 percent in 2022 and 6.5 percent in 2023, contributing 5.3 percent and 4.7 percent to overall growth, respectively. It also sees residential investment to expand by 29.7 percent in 2022 and 48.7 percent in 2023, contributing 0.9 percentage point and 1.8 percentage points, respectively, to overall growth.

“While the proportion of the households who use remittances to purchase houses or pay rents has declined since the pandemic broke out, we expect the recovery in the domestic labor market will allow them to allocate back some of the funds, boosting demand for housing after two consecutive years of double-digit decline in residential investment,” it added.

Due to the fact that the trade balance is expected to worsen this year and domestic demand is viewed to rebound more swiftly, the think tank anticipates remittances to play a significant role in reducing the country's current account deficit. It expects the current account deficit to widen substantially from 1.2 percent of GDP in 2021, but remain within 3 percent this year.

“That said, our outlook is not without risks. As the Omicron variant has reminded us, the pandemic is far from over,” it continued.

Similar outbreaks, Oxford Economics stressed, pose a threat not just to the domestic economy, but also to the rest of the world, resulting in a decrease in remittance flows.

Other threats, like protracted supply chain disruptions and restrictive government measures, particularly in the United States, might endanger the global economy's outlook even in the absence of another virus outbreak, it added.

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