REMITTANCES are expected to decline 9.7% year on year in the second half on the back of weaker-than-usual December inflows, according to ANZ Research.

“Our economists expect remittances in H2 2020 to decline by 9.7% year on year, which will result in the lowest end-of-year flows seen in years,” it said in a note issued Monday.

In the eight months to August, money sent home by overseas Filipino workers declined 2.6% year on year to $19.285 billion, according to the Bangko Sentral ng Pilipinas (BSP).

This year, the BSP expects cash remittances to decline 2% before rising 4% in 2021.

“The Philippine trade deficit is expected to continue improving, courtesy of imports staying low due to weak domestic demand, and exports beginning to improve on the back of the recovery in global trade,” it added.

“The December months where the combined trade balance and remittance flows show an improvement tends to result in a stronger peso. We forecast an increase in the combined balance this December, which should see a return of peso strength into the year-end,” it added.

The peso has been trading at around P48 to the dollar in recent weeks. It closed at P48.395 Monday, against its Friday close of P48.48, according to the Bankers Association of the Philippines.

BSP Deputy Governor Francisco G. Dakila, Jr. has said the peso has appreciated by 4.7% year-to-date, making it among the biggest gainers among the world’s currencies.

Meanwhile, the trade deficit was $14.61 billion in the eight months to August, narrowing from the deficit of $27.071 billion a year earlier, according to the Philippine Statistics Authority.

“The ongoing sharp contraction in imports is expected to keep the Philippine trade deficit in check for longer this year. Although we expect remittances to decline over the coming months, the improving trade balance could be sufficient to see a return of peso strength into Christmas this year,” ANZ Research said.

Imports in the eight months to August fell 27.4% to $53.9 billion, running ahead of the BSP projection for a 20% decline. — Luz Wendy T. Noble