A POSSIBLE contraction in remittance inflows from overseas Filipino workers (OFWs) due to the pandemic this year could further bring down gross domestic product (GDP) by 0.4%, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said on Thursday.

Remittance inflows may recover by next year, depending how fast host countries can bounce back from the current crisis, he added.

The BSP projected remittance inflows to drop by 5% this year, a reversal from the 2% growth estimate it gave in May and the baseline 3% outlook given last year.

“Now, the impact of that on the economy… is that it will slow down GDP by 0.4%. But as you know these numbers are subject to review again because we really don’t know the extent of the pandemic and the what’s the outcome in the host countries,” Mr. Diokno told reporters in an online press briefing.

Latest data from the BSP showed cash remittances in March fell by 4.7% to $2.397 billion as the coronavirus outbreak escalated in host countries and global oil prices plunged. This was the first contraction since the -2.9% in June 2019 and the highest decline since the -9.8% recorded in March 2018.

In 2019, cash remittance inflows jumped 4.1% to a record high $30.133 billion despite global uncertainties and the decline in remittances from the Middle East.

Mr. Diokno said the 5% contraction estimate for cash remittances is “based on the assumption that there will be job losses among overseas Filipinos working in tourism and tourism-related services.”

“In addition, travel bans and lockdowns were imposed by host countries and the Philippines has restricted OFW deployment,” he added.

Security Bank Corp. Chief Economist Robert Dan J. Roces said a contraction in remittance inflows could hit household spending.

“This, in turn, will pull down growth as consumption contributes around 70% to GDP,” he said in a text message.

Mr. Diokno said 80% of remittance inflows end up being consumed, citing a BSP survey.

“In some ways, lower remittances also indicate a contraction in overseas deployment and thus may add to the unemployment numbers locally,” Mr. Roces added.

Around 47,000 OFWs have already been repatriated as of June 16, data from the Department of Foreign Affairs showed.

Meanwhile, the BSP is expecting remittances to bounce back with a four percent growth in 2021.

“The first condition [for this assumption] is that health and economic measures adopted by host countries have gained significant traction. The second condition is that the labor market conditions in the host countries have improved,” Mr. Diokno said.

Global trade recovery will also affect how slow or fast remittance inflows could recover, he added. — Luz Wendy T. Noble