Slowing remittance growth seen to weigh on consumption

By Justine Irish D. Tabile, Senior Reporter

HOUSEHOLD CONSUMPTION in the Philippines could moderate even more as remittance growth slows amid the conflict in the Middle East, according to ING Bank N.V.

ING Regional Head of Research for Asia-Pacific Deepali Bhargava said Philippine consumption is closely tied to overseas remittances, which are largely spent on daily household needs rather than savings or investment, making domestic demand heavily reliant on external income flows.

“With the Middle East accounting for roughly 17-18% of total remittance inflows, developments in the region are particularly important,” she added.

Cash remittances from overseas Filipino workers rose by 2% year on year to an 11-month low of $2.718 billion in April. This was the weakest annual growth in nearly four years, or since the 1.8% expansion recorded in May 2022.

Annual remittance growth has slowed since the start of the year, easing from 3.5% in January to 2.6% in February, 2.3% in March, and 2% in April. 

“Headline data doesn’t yet show a sharp contraction in remittances from the Middle East, but growth has moderated since February. Month-on-month flows have become more uneven in early 2026, reflecting early-stage disruptions linked to the conflict,” Ms. Bhargava said.

“As such, the recent slowdown and rising volatility could exert a more persistent drag on inward remittances as conditions in the Middle East region take time to stabilize,” she added.

Remittances from the Middle East reached $2.045 billion in the first four months, up 3.6% from the $1.973 billion recorded in the same period last year. This accounted for 17.9% of the total cash remittances during the period.

“Given the limited offset from alternative income sources, particularly for lower and middle-income households, any sustained weakening in remittance inflows is likely to weigh on private consumption with a lag,” Ms. Bhargava said.

Household spending, the main driver of the Philippine economy, has been moderating since last year. It grew by 3% year on year in the January-to-March period, slowing from 5.28% a year earlier and 3.8% in the previous quarter.

Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said he still expects remittance inflows to continue expanding, albeit at a more modest pace.

“We expect remittance growth to remain positive but modest in the coming months as overseas Filipinos continue to support their families despite global economic uncertainty and higher living costs abroad,” he told BusinessWorld.

“While this may temper the pace of household spending, the bigger risk to domestic demand would be if inflation stays elevated for longer, as persistent price pressures could further erode purchasing power and make consumers more cautious,” he added.

Consumer prices in the Philippines remain high even as price pressures have eased in recent months. Inflation slowed to 6.8% in May from 7.2% in April but remained above the Bangko Sentral ng Pilipinas’ (BSP) tolerance range of 2-4%.

In the first five months, inflation averaged 4.5%. The BSP recently raised its inflation forecast to 6.4% from 6.3% for this year.

However, Mr. Asuncion said remittance-dependent households would likely be among the first to feel the strain if inflation remains elevated.

He expects households to scale back discretionary spending on retail purchases, housing-related items, travel, and consumer durables before cutting back on essential expenditures.

“Overall, the likely outcome is a moderation — not a collapse — in consumption growth, with domestic demand remaining supported by employment and income conditions but facing stronger headwinds from inflation,” he added.