Remittances to Eastern Europe to slow dramatically

The remittance income from Mexican and Central American immigrants working in the United States back to their home nations is not the only huge remittance flow in the world.  One of significant import is in Europe, where millions of indivuals from the former Eastern Bloc now work in Western Europe.  However, as in the U.S. – Mexican connection, these remittances will be nosediving.

Below is an analysis from Morgan Stanley (with my bolding):

The Central European economies (Czech Republic, Hungary, Poland, Romania) are heavily influenced by developments in their richer western neighbors. Developed Europe accounts for around 70% of all CE exports; its banks dominate lending, with a market share of around 80% on average; and FDI inflows from western European companies have proved to be a significant engine of growth over recent years.

We look at yet another channel of contagion: remittances flows. In the years that followed EU accession (2004 for most accession countries; 2007 for Bulgaria and Romania), large numbers of migrants left their countries and migrated to core EU countries, in particular the UK, Ireland, Germany, Spain and Italy. Among the countries we look at in this piece, this issue is particularly relevant for Poland and Romania: large numbers of Poles migrated to the UK, Ireland and Germany, whereas Romanians migrated mostly to Spain and Italy. BoP data show that remittances inflows account for 4.5% of GDP in Romania and around 2% in Poland. They therefore ‘finance’ around a third of the overall C/A gap in both countries.

We think these remittances inflows will slow markedly in the coming months. This is due to the fact that economic conditions in the countries where most Poles and Romanians migrated to have turned sour, so there will be less money to send home. Also, especially for Poles in the UK, the slide in GBP makes working abroad less attractive: in 2004, GBP/PLN was trading at around 7.0; currently it is around 4.85, after approaching 4.0 last summer (when PLN strength was at its peak). Note, however, that the gap remains large.

I should also point out that Eastern European immigrants in countries like Ireland are getting the sack in droves as that economy has entered a depression. Nevertheless, this puts these individuals in a bit of a pickle because their home economies are facing equally severe downturns.

In my view, intra-EU immigration will become a larger problem within the Eurozone as this crisis unfolds.

See the link below for more of what Morgan Stanley has to say about the remittance issue.

Source Dwindling Remittances – Pasquale Diana & Alina Slyusarchuk, Morgan Stanley


Originally published at Credit Writedowns and reproduced here with the author’s permission.