Mexico: Remittances contract in July
September 1, 2016
Inflows of remittances slowed drastically in July following three months of positive growth. Remittances totaled USD 2.2 billion in July, which marked a 0.1% decrease over the same month last year (June: +6.9% year-on-year) and undershot the USD 2.3 billion the markets had expected. The 12-month trailing sum of remittances totaled USD 25.9 billion, which still represented a solid 6.3% year-on-year expansion. This followed the 7.3% increase in the 12 months up to June.
Analysts suggest that the virtually stagnant figure in July likely reflected the fact that Mexican workers abroad saw the peso stabilizing in that month—following months of volatility—which prompted them hold onto their cash in order to take advantage of another depreciation of the peso, given the political uncertainty associated with U.S. elections this year. Analysts also reckon that political uncertainty related to the U.S. presidential elections could prompt workers in that country to front-load part of their transfers, which, in turn, could lead a sustained growth in remittances before voters head to the polls on 8 November.
Despite the drop in July, transactions to Mexico continue to be supported by a healthy U.S. labor market. U.S. payrolls in the construction sector—a proxy of hiring dynamics in the labor market with a high proportion of Mexican workers—accelerated in July, increasing from a 6.2% annual increase in June to an 8.2% expansion
Author: Ricardo Aceves, Senior Economist