The Philippines is seeking to thwart the effects of the financial crisis with easier monetary policy and higher government spending, authorities said, in an effort to keep a lid on unemployment, which is one of the highest in the region.
Remittance from overseas workers, which reached nearly 11 percent of gross domestic product last year, will be flat at around $16.4 billion this year after double-digit growth in at least the last 6 years, the central bank said.
"We will consider opportunities to further ease monetary policy to help stimulate growth," central bank Governor Amando Tetangco told the country's economic managers at a public forum.
"Monetary policy is flexible and has room to act pre-emptively and swiftly," Tetangco said.
The central bank has repeatedly said slowing inflation, which is expected to fall within target this year and the next, would allow authorities to further cut rates after a total 100 basis points reduction in the last two months.
The central bank is widely expected to cut rates when it holds a policy meeting on March 5.
Inflation is expected to come in at 3-5 percent this year, well within the official target of 2.5-4.5 percent, the central bank said, on lower prices of oil and other commodities.
Exports are expected to contract 6-8 percent this year from a near 3 percent drop in 2008, the central bank said, as demand for the country's main semiconductor products from recession-hit markets such as United States and Japan dries up.
On Wednesday, the statistics office said imports plunged by an annual 34.2 percent to $3.29 billion in December, signalling slowing demand for exports. The country's imports are dominated by electronics that mainly comprise parts used as inputs for exports.
Imports are likely to fall 8 to 10 percent this year against growth of 2 percent last year.
But with imports seen shrinking faster than exports and remittance growth slowing to zero this year, the central bank said the Southeast Asian country will post a balance of payments surplus of $700 million this year.
Unlike its neighbours Singapore and Japan, the Philippines is not expected to fall into recession, but the country has one of the highest unemployment rates in the region, and about a third of its population is considered poor.
The contraction of exports could throw thousands more out of work in Philippine factories, analysts have said.
The government has narrowed its growth forecast this year to 3.7-4.4 percent from a 4.6 percent expansion in 2008 and has vowed to counter the effects of the global slowdown by spending more on infrastructure to boost domestic demand.
Lower growth and higher spending also means a wider budget deficit of as much as 2.2 percent of GDP, or about 177 billion pesos, Finance Secretary Margarito Teves said.
Analysts are worried about further weakness in revenue collection this year.
"A wider deficit is not a worry as much as why the deficit is widening. If it is more from an increase in spending, that is okay even for the market and credit rating agencies," said Radhika Rao, an economist at Ideaglobal in Singapore.
Rao added the expected decline in corporate income tax this year and the tax exemption of minimum wage earners would "only exaggerate the already poor collections."
The Philippines said it had a budget deficit of of P68.1 billion in 2008, lower than the official target of P75 billion, but above government estimates of a shortfall of about P50 billion with the sale of state holdings in oil refiner Petron Corp. in December.