Prediction #1: Strong remittance growth in 2019 due to higher-earning migrants and falling costs as industry goes digital

Dr Gregory Thwaites, Director of Research, WorldRemit

We predict that remittances will grow by 6% in 2019.

How did we come up with this forecast? Remittances grew from $117 billion to $625 billion over the two decades to 2017, representing an 8.7% compound annual growth rate (see figure 1 below). This was nearly twice as fast as the 4.7% growth in the dollar value of the world economy over this period. Preliminary data from the World Bank suggest that grew a further 10.3% in 2018, compared to the IMF’s forecast of 6% growth in global dollar GDP.

Remittances grew faster than world GDP for three main reasons:

1. The number of migrants grew faster than world population, such that their share rose from 2.8% to 3.4% (see figure 2). This meant that there were proportionally more people likely to send remittances.
2. There was some reallocation of migrant populations towards richer countries, so the same migrants were able to earn higher incomes. These two factors influence the amount that migrants have available to send.
3. It has become cheaper to send remittances: the average cost of sending US$200 has fallen from approximately 10% to 7% since 2008, the earliest date for which comparable data are available, and may also have fallen in the preceding decade. This reduction is cost is likely to have encouraged migrants to send a larger fraction of their incomes.

The latest IMF forecast suggests that world GDP will grow by 3.7% in 2018 in real terms, and by 3.8% in US dollar terms. And growth in dollar GDP is likely to be faster in those economies that send more remittances — more like 4.2%. Over the past, dollar GDP growth in remittance-sending countries has borne a close relationship with the total growth in GDP (see figure 1), but has on average not grown quite as fast — about 1.8 percentage points less per year on average over the past ten years. This probably represents, as explained above, the rising share of migrants’ incomes in the world total, and the falling costs of sending money. We suppose that this wedge continues to drive remittance growth over the near future, as digital remittances continue to grow and drive down the average cost of sending money across borders — digital remittances are around 30% cheaper than offline.

So where does this leave us?

Our 6% forecast in growth in 2019 is below the 20-year average and substantially below the 2018 figure, as dollar GDP growth in remittance-sending economies slows down. Over the following three years, the same method produces forecast growth rates of 6 –7% per year. Of course, these are predictions with all the attendant caveats…

There are risks on either side: on the one hand, the exchange rate, more restrictive migration policies in key advanced economies and other macroeconomic developments could render this forecast over-optimistic. On the other hand, continuing demographic, employment and living standards imbalances between countries could mean we have been too conservative in our predictions. Overall though, the broad direction of travel will remain:

For migrants living in developed economies the good news is that as money transfer costs continue to fall, they will be able to send home more for less.