Remittance boom may begin cooling this year

Remittances to Mexico grew 6.5% to a high of US$2.415bn in January, the 34th straight month with positive year-on-year growth.

The growth rate was also higher than the 5.6% y-o-y rise posted in January 2018, according to central bank data.

The following graph tracks the 12-month cumulative amount of remittances to Mexico in recent years, using central bank data.

Analysts, including Juan José Li Ng of BBVA Research, pin the sustained growth on the US economy's solid performance over the last few years, helping more Mexicans in that country find work and send money back home.

Li Ng wrote that February and March flows could mark the strongest annual growth this year, adding that BBVA Research expects remittances to reach US$34.79bn in 2019, 6.9% above the 2018 total.

In a note to clients, Banorte's analysis team credited "strong dynamism" in remittances on the US labor market, as employment of Mexican migrants with and without citizenship increased 2.5% and 1.8%, respectively, in January.

Mexico received US$33.5bn in remittances in 2018 - the highest level ever recorded by the central bank and a 10.5% increase from 2017.

Both analyses, however, suggested the remittance boom could be winding down this year amid a projected slowdown in the US economy.

"In our opinion, remittances will remain strong, but they will moderate their rate of advance in 2019," said the Banorte analysis team. "In particular, we expect a slowdown in economic activity in the US due to lower global dynamism and as the effect of [2017 tax reform package] dissipates."

Banorte added that the labor market looks to continue to grow at a solid pace, expanding strong enough to pressure wages, "which could help the growth of the average amount sent. Additionally, we continue to believe that US anti-immigration rhetoric is encouraging a greater flow of remittances, with the risk that even though it is still latent, there is the possibility that some type of restriction may be imposed and as well as greater uncertainty about the possibility that illegal workers may be deported," said Banorte.

"Although this factor has been present for some time now, we believe that it could go into motion in the second half of the year at the start of the electoral campaigns for the 2020 elections," added the bank.

With these factors in mind, Banorte sees the annual growth of remittance moderating in 2019 down to the single digits again from the 10.5% growth last year, though remaining healthy.

The central bank reported a 4.4% y-o-y increase in the number of transactions in January, recording 7.7mn operations - 97% of which were electronic transfers. The average remittance was also higher in January, up 2.0% y-o-y to US$313.