Traders expect markets to be volatile until US Fed acts decisively to ease fears of US recession.

But until then local exports and the stock market will be the hardest hit. In general, they said, the economy will be able to ride out the storm.

Marcelo Ayes, senior vice president of Rizal Commercial Banking Corp., said exports are likely to grow below the eight-percent official forecast with demand from the US, the Philippines’ biggest trading partner, softening.

"A US recession will have a big impact on our exports," Ayes said. "There will be less demand for electronics and furnitures," he said.

The US economy entering two consecutive quarters of negative growth is becoming a reality, traders said, raising the specter of a "global meltdown."

"The Fed expected a slowdown, but it was more than a slowdown," Ayes said. "This fear of recession is generating risk aversion. Investors are unwinding their investments, they will come back but first there will be global meltdown," he said.

The stock market has officially entered into a "bear mode," Ayes said, with the main composite index down by 20 percent from its 2007 peak.

"If companies have plans to expand, they might have second thoughts because of the recession. They might streamline instead of expanding," Ayes said.

Jonathan Ravelas, market strategist of Banco de Oro Universal Bank, said, however, exports won’t grow as expected but it should weather the crisis.

"During the Asian crisis, we survived. So we will survive this time, just don’t expect double-digit growth in exports," Ravelas said.

Ravelas said the economy should also be resilient in the face of this crisis, noting that of late growth has been fueled largely by domestic demand.

"The government will continue to spend. It was spending before the Asian crisis. Now, it plans to increase spending in the next two years for infrastructure. This is helping the economy," he said.

Government infrastructure spending in the past, Ravelas said, boosted the telecom sector and is now experiencing a call-center boom.

Meanwhile, Ayes said "solid balance of payments surplus and high reserves" would help the economy survive the external shocks.

Consumer, he said, will also help "save the day" expect that there will be some "setbacks for dollar earners."

"Domestic consumption will be the savior," he said.

Ayes said there would be volatilities between now and the Fed meeting at the end of the month, where it is expected to cut its rate by a huge 50 basis points.

"There’s no light at the end of the tunnel. If there’s light, it will be from a train coming from the opposite direction, so you can expect a collision," Ayes said.

Traders said with the market unstable and investors fleeing to safer shores, there will be continued decline in the domestic market, with the peso in particularly seen traversing the 42 territory this week.