Philippine Markets Newsletter

MONDAY MACRO: This major fund source for the Philippines is painting mixed signals for the country’s economy amidst record inflation

June 20, 2022

OFW remittances have been a vital growth driver for the Philippine economy for decades. In the pre-pandemic period, even when the rest of the world experienced a recession, remittances kept the Philippine economy afloat, contributing to consumer spending and overall GDP.

With uncertainties surrounding Philippine equities and the country’s overall economic state, this metric could provide some insight regarding the economic situation for the second half of 2022.

Philippine Markets Newsletter: 
The Monday Macro Report
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The Philippine stock market has faced several challenges throughout the first half of 2022 as evidenced by the Philippine Stock Exchange Index (PSEi) declining by 11.11% since the start of the year.

2022’s second half is showing improving signs but is still below its recent high towards the end of last year.

The uncertainties faced by the local stock market—at least in the short term—can be attributed to rising inflation, a possible COVID-19 surge, and questions about the incoming administration’s economic team.

The country is currently at high risk for COVID-19 due to the faster infection rate of the new variant, which will likely put pressure on the economy as limits are placed on operational capacity for businesses and activity in general.

A higher infection rate from the subvariants may still pressure the economy if limits are placed on operational capacity for businesses and movement activity to contain the spread.

In terms of inflation, the country’s central bank, Bangko Sentral ng Pilipinas (BSP), has raised interest rates for the first time in 18 months from a flat 2% to 2.25% as part of its framework to manage inflation.

Despite all of that volatility, one thing may help improve the country’s economic outlook in the back half of the year – OFW remittances.

Earlier this year, we wrote a similar view that OFW (Overseas Filipino Workers) remittances have historically been a significant contributor to the country’s GDP by increasing consumer spending.

By having an income source from relatives abroad in countries with higher costs of living, Filipino families can afford things that they would not normally be able to with Philippine wages alone.

Holding all else constant, this would increase the demand for consumer goods and services as well as the output produced by businesses as a consequence. Both would move to increase the country’s GDP.

In April 2022, the BSP noted a 3.8% increase in remittances to $2.67 billion attributed to an increase in land-based OFWs with contracts exceeding one year.

The BSP noted that the major contributors to this increase in remittances came from OFWs in developed countries like the United States, Saudi Arabia, Japan, Taiwan, and Singapore. Particularly, the US contributed over 40% of personal remittances due to its strong economic recovery.

However, the US is also facing its own challenges, including inflation issues. Facing a 40-year high of 8.6% for the May inflation print, the S&P 500 has trudged even lower than the PSEi, falling over 13% since the start of the year with over 6% coming from the last month alone.

The US is also gearing up for economic expansion through increased infrastructure spending and employment opportunities under Biden’s Build Back Better Plan. The Philippines may be an indirect beneficiary of this if more Filipinos get on the US job market.

OFW remittance growth stagnating between 1.3% and 3.9% for the first four months of 2022 may be a cause of concern for investors tracking the overall economy as the remittance growth recently peaked at 13% in April and May of 2021.

With remittances slowly tapering down since December last year, OFW remittances against the backdrop of inflation appear to be painting mixed signals for the Philippine economy.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!


Angelica Lim
Research Director
Philippine Markets Newsletter
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