Mexico: Remittances soar in May on weakening peso
July 1, 2016
Remittances from Mexican workers abroad rose in May and accelerated the pace of expansion compared to April. Remittances totaled USD 2.5 billion in May, which marked a 13.1% increase over the same month last year (April: +8.3% year-on-year). The reading was the strongest month since October 2008 and also surpassed market expectations of USD 2.3 billion. With May’s increase, the 12-month trailing sum of remittances totaled USD 25.7 billion, which represented a solid 7.3% increase compared to the same period last year. The increase followed the 6.3% expansion in the 12 months up to April.
Analysts agree that the currency-related swings observed in past months prompted workers abroad, particularly in the U.S., to increase transactions. As Alberto Ramos at Goldman Sachs puts it: “a weaker peso and low domestic inflation should continue to boost the local currency real purchasing power of the remittance flows.” This bodes well for Mexico’s GDP in Q2, which is an economy where private consumption the current driving force for growth.
In addition to a weak peso, remittances continue to be supported by a healthy U.S. labor market, despite the current loss of job creation momentum. U.S payrolls in the construction sector—a proxy of hiring dynamics in the labor market with a high proportion of Mexican workers—continued to increase in May, although the increase was the slowest since February 2014.
Author: Ricardo Aceves, Senior Economist
