17 April 2018
Philippines: Overseas remittance growth normalises in February

Remittance growth slowed in February due to a 10% drop from the Middle East. This bodes ill for the Philippine peso

Middle East remittances drop

Remittances from the Middle East dropped by 10% year-on-year in February as a deployment ban to Kuwait resulted in a 45% YoY decrease (from January’s increase of 19%) while Saudization (a policy intended to boost hiring of Saudi nationals in the private sector) also resulted in a 17.5% drop of remittances from Saudi Arabia. The drop in remittances from Kuwait was more than offset by the surge of remittances from Qatar in January, at a growth rate of 15% but February remittances dropped 3.7% YoY.

Normal growth of remittances does not augur well for the Philippine peso

Regions where growth has recovered showed strong remittance growth.

  • Remittances from Asia were 17% higher in February after a 15% increase In January.
  • Remittances from the US, which accounts for 31% of total remittances, accelerated to a 12.8% annual increase from January’s 9.2%.
  • Remittances from Europe sustained an almost 15% YoY growth in February with remittances from mainland Europe growing at a double-digit rate while remittances from the UK were barely above flat.

The central bank expects 2018 remittance growth of 4%. We are slightly more optimistic with a forecast of 4.5%. The normalisation of remittance growth does not augur well for the Philippine peso as remittances would fall short in financing a wider trade gap. This underfunding is now the norm. We estimate that this shortfall could be as large as $5.4bn this year from 2017’s $1.6bn.

Indonesia: Trade balance returns to surplus in March

The March trade report produced an upside surprise for exports and a downside surprise for imports, resulting in a trade surplus

March trade surplus eases concern over a wider current account

Indonesia’s trade balance turned for the better in March with a trade surplus of $1.1bn after three straight months of deficits. Imports surprised on the downside with more modest growth of 9.1%, slower than the consensus of 13.5% and our 23.5% forecast. We had anticipated that the strength of the domestic economy would keep import growth high and near the pace seen in the previous five months. We view the slower March imports as temporary and expect a recovery in April. But negative base effects start to become more significant in July. Exports surprised on the upside with a 6.1% YoY increase, ahead of the consensus forecast of 3%. This is slower than the growth posted in the past eight months. Favourable commodity prices and higher processed exports account for the upside surprise. However, base effects are also likely to keep export performance modest. The large trade surplus in March offset the January-February deficit of $808m. The 1Q surplus amounted to $284m which is only 7% of the trade surplus in 1Q2017. This lower 1Q trade surplus will likely result in a current account deficit of around $5bn in 1Q and contribute to a current account deficit equivalent to -1.9% of GDP for 2018. The Indonesian rupiah's relative strength on the back of the large March trade surplus could be temporary.

Why China’s economy should remain strong

We believe that China's GDP should continue to be strong at 6.8% YoY in 1Q, better than consensus of 6.7%. We have good reasons for our strong call

We expect 6.8% YoY GDP growth in 1Q18

China's GDP should continue to be strong at 6.8% YoY in 1Q. China has experienced the same growth rate since 3Q17. Consensus is now at 6.7% YoY.

We have good reasons to expect the Chinese economy to grow as fast as in the last two quarters.

Reading time around 3 minutes

Good MornING Asia - 17 April 2018

We believe that China's GDP should continue to be strong at 6.8% YoY in 1Q, better than consensus of 6.7%. We have good reasons for our strong call

In this bundle