By Tracy Cabrera
DESPITE posting a plunge much more than expected in the second quarter that placed the country’s economy at risk in falling into recession for the first time in 29 years, an unexpected increase in money remittances by overseas Filipino workers is giving the Philippines a reprieve from the threatening economic slump.
Economic activity in the archipelago was hammered by one of the world’s longest and strictest coronavirus lockdowns, causing the economy to shrink by as much as 16.5 percent from April to June from the same period the previous year—the biggest slump in the Duterte administration’s quarterly gross domestic product (GDP) data dating back to 1981.
The GDP fell by much more than the 9 percent contraction forecast in a Reuters poll and was worse than a revised slump of 0.7 percent in the first quarter. Seasonally adjusted GDP fell 15.2 percent in the second quarter from the first three months of the year.
The economic hit from the pandemic could worsen with the government continuing tighter quarantine controls in the capital Manila and nearby provinces while awaiting the possibility of a vaccine for the deadly coronavirus disease (Covid-19).
Acting economic planning secretary Karl Chua had earlier said that Philippine economy is expected to contract by 5.5 percent before the yearend, which is deeper than initially thought.
However, a surprise increase in money sent home by overseas workers has given the Philippine peso—described as Asia’s best-performing currency the current year—an unexpected boost.
The Philippine peso advanced recently to the strongest since November 2016 after the central bank said the previous day that remittances increased 7.7 percent in June, defying forecasts for a decline. The peso has now appreciated 4.7 percent in the past three months, compared with 2.3 percent for its Asian peers. The turnaround in remittances adds another positive for a currency that’s already been benefiting from a weaker US dollar and a gradual winding back of lockdown restrictions to support the economy.
“The peso is rising largely due to remittances as the currency continues to outperform even when the dollar gets stronger,” said Paul Raymond Favila, head of markets and securities services at Citigroup Inc. in Manila.
“Sustainability is there until there is economic recovery, which will lead to larger imports, especially of oil. I don’t see that happening anytime soon,” Favila added.
Remittances are the nation’s largest source of foreign exchange after exports, and account for about 10 percent of Philippine economy. The reading of US$2.5 billion for June was the largest gain in eight months. Economists had forecast a decline of 7.2 percent.