BY JIMMY C. CALAPATI

Lower remittances and deteriorating loans portfolio still remain the country’s "main vulnerability" as far as the effects of the global economic slowdown to the country is concerned, according to Bangko Sentral ng Pilipinas governor Amando Tetangco.

"In terms of the real sector, our main vulnerability lies in exports and remittances," Tetangco said.

Recessionary trends in the country’s major trading partners like the US and in Asia have slowly translated into slower demand for products and services.

In December and January, exports declined by more than 40 percent.

He said that growth in remittances coursed through banks has slowed down to 0.1 percent in January.

"Remittances have thus far continued to hold up, but there are concerns that they may eventually succumb to the global slowdown, particularly as labor demand weakens in the host countries," the central bank chief said.

These two fronts, according to Tetangco, ultimately affect private consumption spending, which plays a big part in domestic economic growth.

Domestic demand continues to be driven by personal consumption, which historically has shown to be resilient over many economic cycles.

In the past 30 years, consumption has not suffered a contraction except during the balance of payments crisis in 1985.

Tetangco said that there may be important demographic reasons behind this stability, such as the relatively young and economically active population, whose relatively higher income levels could lead to high propensities to consume.

"There may be risks to household spending from a slowdown or contraction in remittance flows," Tetangco added.

However, with other labor markets opening up to Filipinos, Tetangco said the impact of a slowdown in deployment may be muted.

"Here, too, demographics are also on our side in terms of the driving factors behind labor demand in the host countries, particularly for healthcare- and education-related occupations. This will help ensure that our Gross International Reserves continue to grow and our Balance of Payments position will remain positive," Tetangco said.

In the financial system, Tetangco maintained that credit is still growing at healthy levels, but the potential weakening of corporate and household finances could lead to deterioration in the quality of banks’ loan portfolios.

"Local banks have already responded by tightening their lending standards and boosting their capital reserves. The risk is that this could result in less credit being available for productive purposes, which would add to the pressure on businesses," Tetangco said.

Tetangco said that the risks to global financial stability have remained high, while the risks to economic activity have intensified.

"These are rather acutely felt in emerging economies as capital flows slacken," Tetangco said.

He added that the pullback from emerging economy assets since mid-September has been widespread, and financing costs for these countries remain much higher than previous levels.

Countries with large external financing needs—both public and private—and highly leveraged financial systems may face greater funding strains.

On the other hand, Tetangco said inflation is easing quickly across countries with the fall in economic activity and the easing in commodity prices from their 2008 levels.

"However, many countries are also at risk from deflationary impulses, which will hamper economic stimulus efforts. This is a risk that affects not only the advanced economies, but potentially some emerging economies as well," Tetangco said.