Standard & Poors Ratings has lowered its growth forecast for the Philippines this year from the original projection of 3.3 percent to only 2.2 percent. At worst, it said, the country could post zero growth.
S&P said even a growth-supportive monetary policy would not fully offset the impact of slowing external demand and declining remittances.
Remittances are widely expected to drop sharply this year, with the central bank projecting single-digit growth for the first time since the government started tracking these inflows. Foreign banks expect declines of as much as 20 percent.
S&P said in its latest Asia-Pacific Economic Outlook that growth would slow down as global conditions worsen.
By 2010, however, it said the economy could bounce back to a growth of 3.7 percent to 4.2 percent.
S&P said its baseline forecasts for 2009 and 2010 were based on its baseline US scenarios of a 2-percent decline during 2009 and positive growth of 2 percent in 2010.
"We have also forecast a worst-case scenario for the region, based on a worst-case scenario for the U.S. of a 3.8-percent decline in GDP during 2009," said S&P chief economist for Asia Pacific, Subir V Gokarn.
Under the worst case scenario, Gokarn said the country's growth would drop to zero and 0.5-percent range.
This year, S&P said it expected the national average inflation rate to range between 3.7 to 4.2 percent, due in part to base effects. By 2010, the agency said inflation rate would stabilize at 4.2 percent to 4.7 percent.
S&P's inflation forecast upgraded its earlier projection that the rate would range between 5 and 5.5 percent this year.
The agency's projections were also not far from the projections made by the central bank, which said inflation rate would drop to as low as 3.9 percent this year and rise slightly to 4.7 percent in 2010.
Gokarn said the Philippine economy already saw some softening in the fourth quarter of 2008 due to lower domestic consumption and exports. He said a fall in investment was key to this growth decline.
This year, Gokarn said exports of both electronic and commodity goods would bear the brunt of the weak global environment.