Overseas Filipino Worker cash remittances moderated in May to $2.47 billion, a 6.9% year on year increase but $1.2 billion short of the amount needed to cover the May trade deficit
Overseas Filipino worker (OFW) remittances rose 6.9% in May but slowed form the 12.7% rebound in April. The average monthly growth rate for the five months is back to 4.2% which is in line with the more normal pace of 4% to 5% growth. Remittances from the US, Asia and Europe continue to fuel the growth. Remittances from the US representing 33% of total remittances were 7.9% higher YoY in May and averaged a monthly growth rate of 6.2% for the first five months of the year. Asian remittances were up 35% YoY and account for 22% of total remittances for May. For the first five months, remittances from Asia posted an average growth of 16%. Remittances from Europe (which account for 15% of the total in May) increased by 17.2% YoY and by 10% for the five-month period. Middle-East remittances remain weak, posting a YoY contraction of 16.3% in May and 12% for the period. Despite the upside surprise in April and May, the monthly remittances remain inadequate to finance the monthly trade deficit. The shortfall of remittances to finance the May trade deficit amounted to $1.2 billion. The shortfall for the five months is $3.9 billion, a turnaround from the excess of $1.2 billion in the first five months of 2017. This shortfall would likely continue and would keep the Philippine peso on the defensive.
Slower import growth in June brought the trade balance back to a surplus of $1.7 billion. This, together with a vigilant central bank, will stabilise the Indonesian rupiah
Import growth slowed to 12.7% in June, moderating from the robust 28.3% and 35.2% growth rates in May and April, respectively. Non-oil and gas imports slowed significantly to less than 9% in June from the average April-May growth rate of 29%. Export growth in June is in line with the April-May average export growth of 11.2%. We are pleasantly surprised with the June trade surplus of $1.7 billion, better than our forecast of $1.4 billion and the consensus forecast of slightly below $1 billion. The turnaround of the trade position in June will likely keep the second quarter current account at -2.2% to -2.5% of GDP. We expect the full year current account to be in a deficit equivalent to -2.4% of GDP, which is in line with Bank Indonesia’s (BI’s) view of better than -2.5% of GDP. The return to a trade surplus together with BI’s aggressive policy rate hikes since May helps not only to stabilise the current account outlook but also the Indonesian rupiah. IDR has traded between IDR 14240 and IDR 14480 since the surprise 50 basis point rate hike in late June. This stability argues for a pause in the central bank’s tightening cycle at this Thursday’s policy rate meeting.
The ongoing trade war will affect future GDP directly via the manufacturing and logistics services sectors. Though the government will provide support via fiscal and monetary policies, it is inevitable that industrial production will slow, which could hurt wage growth and consumption
GDP grew 6.7% YoY in 2Q, slightly lower than 6.8% in 1Q. Consumption was still the growth engine, contributing 78.5% of economic growth in 1H18, followed by investment (31.4%) then net exports (-9.9%).
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