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February 18, 2009

IMF sees sharp downturn in Philippines economy

Growth in the Philippines is set to slow sharply this year as the economy faces "strong head winds" from falling global demand and a drop in remittances from Filipinos working abroad, Reuters quoted the International Monetary Fund as saying Tuesday.

In its annual review of the Philippines economy, the IMF forecast that gross domestic product growth will ease to 2.9 percent this year, down from a projected 4.4. percent in 2008.

The IMF said inflation targeting has helped anchor inflation expectations in the Philippines and urged the authorities to cut interest rates if inflation expectations continue to fall.

Philippine annual inflation eased to 7.1 percent in January, the lowest rate in 10 months, from 8.0 percent in December.

The IMF said the value of the Philippines peso currency was "broadly in line with longer-term fundamentals".

It said exposure by banks in the Philippines to failed and "distressed" global banks was limited but urged the central banks to step up surveillance of banks' off-balance sheet activities.

"Continuing strains in global financial markets could lead to further losses on banks' security holdings, reduce the availability of external financing, and raise risks related to banks' off-balance sheet activities," the IMF warned.

It said combined exposure to bankrupt U.S. investment bank Lehman Brothers and 10 other distressed global banks amounted to $1.5 billion, or 13 percent of equity.

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