Drop in remittances to worsen economic contraction

An American credit rating agency, Fitch Ratings projected that the weakening of remittances from overseas Filipino workers (OFWs) displaced by the pandemic would worsen the contraction of the country’s economy.

Economists estimated that the nation’s gross domestic product would shrink by 8 %, worse than the earlier projected 4% drop. Positive growth rate would only experience next year.

Fitch described the declining remittances as an “economic shock” that, it said, would erode consumer purchasing power in a country where 70% of the economy is driven by consumption. 

In the past, it pointed out, whenever the country experience domestic economic shocks, increased remittances help mitigate the impact of sluggish domestic activity.

Fitch, however, said it would not work that way this time since the pandemic represents a global economic shock unlike previous downturns.

“This limits the potential support of the remittance channel,” it added.

Cash remittance inflows, were down 4.2% on the first half of the year, better than the projected 5% drop by the Bangko Sentral ng Pilipinas.

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