Wednesday, 12 August 2009

HSBC amazed at Philippine remittances

Eileen A. Mencias
Manila Standard

HSBC has kept its 1-percent growth forecast for the Philippines, but yesterday admitted that its initial expectation of a 20-percent decline in remittances was “wrong.”

“The remittances from Filipinos working abroad have been absolutely astonishing,” bank economist Frederic Neumann said, adding that they had scrapped their forecast and were now looking at a zero- percent growth, which would still be “phenomenal.”

Neumann said the global recession had affected both developed and developing economies alike, but its impact on employment was different between the West and the East.

“While unemployment has been rising in Europe, the United Kingdom and the United States, employment in the emerging markets such as Asia and the Middle East has been holding and buoying remittances,” he said.

The Philippine central bank forecasts remittances will reach $16.5 billion this year, the same as last year’s, but it has been reporting a slight growth of below 5 percent.

Neumann said the outlook on the Philippines was favorable, with economic growth expected to go back to 3 percent in 2010.

“The risk in remittances is the prospect of a slowdown in the US economy next year and well into 2011, and how it will affect other economies and the prospects of future employment as the deployed workers only have contracts of 12 to 24 months,” Neumann said.

He said the growth of the US economy was a concern as it affected exports across the globe.

“The grim outlook on the US economy means that exports will not be strong across Asia,” Neumann said.

“Unlike the US, however, Asia does not have the problem of bad assets, and the liquidity in the region that can be used to fuel growth is at record levels.”

Neumann said that liquidity required central banks in the region to tighten policy in the future. Weak exports now was an argument against a tightening of monetary policy as it would result in the appreciation of local currencies, and that would make exports less competitive.

One challenge for the Philippines was the political environment, Neumann said, as the political landscape was in a period of uncertainty as a result of next year’s elections.

“The Philippines does not have the problem of asset bubbles yet. However, we expect the Philippine central bank to start stop cutting its rates and maintain its rates for the rest of the year,” Neumann said.

He said he expected the central bank to start raising its rates in the first quarter of next year, and by some 25 basis points.

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