Remittances to Mexico, CenAm pick up again

Remittance flows to Mexico and Central America rebounded in August and September reversing the slow deceleration of the first half of the year.

The upturn suggests potentially greater support against the global economic slowdown.

Remittances rose 17% year-on-year to nearly US$3.38bn in August, according to the central bank. During the first eight months of the year, remittances grew 8.7% to US$23.9bn.

Banorte said in a note that with the resurgent flow in August, “remittances could show a stronger performance than previously anticipated, which would be an even more relevant support factor for private consumption,” a key metric considering the country’s economic downturn this year.

A BBVA forecast, updated October 7, estimates 2019 remittances of close to US$35.5bn (+5.3%) and US$37.2bn (+5.0%) in 2020.

The report added that Mexico remains the fourth largest recipient country for remittances, behind India, China and the Philippines.

It also noted that the Mexican economy has become increasingly dependent on remittance flows, with their share of GDP rising from 1.7% of in 2013 to 2.7% in 2018.

CENTRAL AMERICA UPSWING

Remittances surged in El Salvador too, with the central bank reporting US$459mn for September, up 6.9% from the same month of 2018.

During the first nine months of the year, transfers to El Salvador amounted to US$4.16bn, up 4.4% year-on-year.

Of the total, remittances from the US were US$3.95bn through September, up 4.8%, while from Canada US$37.7mn came in, up 6.3%.

In the rest of the sub-region, remittances to Guatemala reached US$7.75bn in the first nine months of the year (+13.5%), while transfers to Honduras through August came to US$3.57bn (+10.8%). Nicaragua registered nearly US$797mn through July, reflecting 9.9% annual growth.

REASONS FOR GROWTH

BBVA Research attributed the solid growth in Mexico to “the appreciation of the dollar and the improvement in working conditions of Mexicans in the US,” adding that migration trends were fundamentally linked to their outlook for the payments.

The report also noted “these resources are very important in El Salvador, where they equate to 21.4% of GDP; in Honduras, 20.0%; in Guatemala, 12.0%; in Nicaragua, 11.3%; and in Belize, 5.0%.”.

Banorte said “we believe that their solid advance in spite of a challenging base-effect is to a great extent explained by the fear of anti-immigration policies of the US administration, helping compensate for the impact of a more modest pace of economic activity and job creation in that country."

BBVA Research noted that more than half of remittances to El Salvador are sent by undocumented migrants working in the US.

Beyond Mexico and Central America, the report added more than 8mn emigrated from the Caribbean in 2017, and this area received just over US$12.7bn in remittances in 2018.

Latin America and the Caribbean “are among the most dynamic regions in receipt of remittances,” added BBVA Research, estimating the region will receive US$93bn in 2020. This would represent a 36% increase from US$68.5bn in 2015.

BBVA added global remittances could reach US$747bn in 2020 – roughly equivalent to the GDP of Saudi Arabia.

Pictured: A house  in a Guatemalan village, built with remittances from the US.