2022 was the year global economies emerged from the COVID-19 pandemic, only to quickly face a new set of financial challenges.
Rising inflation and consequently higher interest rates in countries such as the US and UK increasingly placed pressure on household budgets. The price of energy rose astronomically in some markets, as did the cost of housing.
In theory, these cost of living pressures mean expatriates working overseas in developed markets have less money to send back home.Gates Capital Management Reduces Risk After Rare Down Year [Exclusive]
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However, that's not how things played out in 2022.
Instead, remittances remained resilient over the past year, even increasing from 2021.
At the very onset of the pandemic in early 2020 , remittances were forecast to drop dramatically. But that's not what happened, instead they remained flat over 2020 at US$711 billion, before rising to US$781 billion in 2021.
It seems the same has happened in 2022, with global remittance inflows set to increase globally by an average of 5.9%.
The increase is projected to be larger in some markets over others with remittances in low and middle income countries growing by roughly 4.9%.
In India, where remittance inflows are the highest in the world , remittances rose 12% in 2022 and are on track to hit a record breaking US$100 billion.
Why Are Remittances Increasing, Despite Adverse Economic Developments?
A few factors are behind this trend. According to the World Bank, one of the main drivers is that host countries are opening up post-COVID. This means that many blue collar workers who returned home during the pandemic are now able to go back to their host countries to resume work and send money home.
We've also seen currency exchange rates shift. In the case of Russia, the strong appreciation of the ruble translated into higher outward remittances in US dollar terms.
And despite economic uncertainties , including rising inflation , the risk of recession and higher interest rates, these risks don't have a big impact in every market. Some countries with prominent remittance outflows are buoyed by healthy local economic conditions.
For example, in India, the boom is in large part thanks to the booming economy of the Gulf Cooperation Council (GCC) in markets like the UAE and Saudi Arabia.
In fact 30% of Indian remittances are from the GCC, whose economic conditions were favorable in 2022 due to the price of oil, allowing Indian families to combat the effect of inflation without an impact on their own bottom line.
Will Remittances Continue To Grow In 2023?
While 2022 was riddled with economic uncertainties, the outlook for 2023 is arguably just as trepidatious.
The International Monetary Fund (IMF) is predicting one third of the world economy will hit a recession in 2023 .
Remittances seem to have survived the increase in cost of living pressures over 2022, but can they still thrive if we hit a global recession?
The answer varies from market to market and depends on a slew of external factors. Inward remittances largely depend on the economic situation of the country where the money is coming from. If the economic conditions in those markets are favorable then remittances can still feasibly increase.
Globally, the World Bank is forecasting global remittance growth to slow in 2023 to 2%.
The Bank notes substantial downside risks of a further deterioration in the war in Ukraine, volatile oil prices and currency exchange rates, and a deeper-than-expected downturn in major high-income countries.
All of this will have a direct impact on the amount of money remitters have to send to their home countries. However, just as we saw in 2022, some markets will be hit harder than others.
As this happens, it'll become prudent for those sending money abroad to do so with the cheapest fees available.
For those trying to maximize the money they have, they should always look into the most cost-effective way of doing so . This is likely through a mobile provider but will depend on individual circumstances. Less money spent on fees means more money in the pockets of their loved ones.