Remittances sent home by overseas Filipino workers (OFW) are seen to contract by 15 percent this year as the global economic crisis continues to take its toll on overseas employment, Singapore-based DBS Bank Ltd. said.

In the Economic Markets Strategy 2Q 2009, DBS economist Lim Su Sian said the downfall of the country's major markets such as the United States, Japan, Hong Kong, and Singapore will greatly affect the amount of money sent home by OFWs who work in the said nations, which account for 60 percent of total remittances.

According to DBS, these economies are expected to contract by 3.3 percent this year. "Eyeballing this against remittance growth suggests that a 15 percent drop in remittances this year is entirely plausible," the investment bank said.

The pace of remittances growth has almost grounded to a halt in January this year when total money sent home by Filipinos working overseas grew by only 0.1 percent at $1.266 billion, data from Bangko Sentral ng Pilipinas (BSP) showed.

The latest figure was lower than December 2008's $1.4-billion total, and is the slowest growth rate since January 2004.

Earlier, the BSP said OFW remittances will stay flat in 2009 at around last year's level of $16.4 billion. But, according to the median of a Reuters poll of 10 economists, remittances will fall 6 percent this year from 2008.

The Philippines is one of the world's leading sources for skilled and unskilled workers with up to 9 million people, about 10 percent of the population, living and working in 140 countries. 

Consumer spending, GDP down

With the "massive dependence" of Filipino households on remittances to support expenses, DBS said consumer spending may shrink to 4.3 percent this year from 4.5 percent in 2008.

As a result, DBS is expecting the economy to slow down to 2.5 percent from 4.6 percent in the previous year, especially with consumer spending accounting for 70 percent of GDP in 2008.

"The sharp global downturn this year will see the Philippines grow just 2.5 percent, the slowest pace since the dot-com bubble burst in 2001. Although year-on-year comparisons won't show it, our forecast reflects an economy close to recession,” DBS said.

Inflation, on the other hand, is likely to ease to 2.7 percent from 9.3 percent.

“Falling demand should keep inflation low at 2.7 percent this year. The BSP has room to cut further,” DBS said, adding that the central bank is expected to slash key policy rates by 75 basis points before the end of the third quarter, bringing the overnight borrowing rate and overnight lending rate at 4 percent and 6 percent, respectively.