Remittances, one of the cornerstones of the economy, will be adversely affected by the slowing down of the US economy.

Analysts fear that a recession in that country will have a bigger bite on the amount of money sent home by those living in the US compared to its impact on exports.

Similarly with 10 percent of the population working abroad, its impact will be considerable on almost every other Filipino family.

Frances Cheung, economist of the British banking giant, Standard Chartered Bank, yesterday said that "while the Philippines ’ trade linkage with the US is not particularly strong compared to its many other Asian neighbors, over half of the OFW remittances come from the Americas , particularly the US".

"Recent monthly remittance flows have been volatile. Nevertheless, it rose by a decent 18 percent year on year in the first half," she said.

A growth in OFW inflows of between 10-15 percent for the whole year in 2007, which is in line with the government’s 10-percent forecast, is "good enough to support spending," the Hong Kong-based analyst said.

Problems will arise, however, if recession will reduce the amount of dollars workers can send home.

Cheung yesterday hiked the gross domestic product forecast for the Philippines for this year to 6.5 percent from 5.1 percent on expectations of more spending and investment.

At the same time, the bank raised its projection for next year to 5.3 percent from 4.5 percent.

"I have revised the forecast for the Philippines . I now expect 2007 GDP growth at a solid 6.5 percent and 2008 GDP at 5.3 percent on the back of stronger domestic demand, including consumer and government spending, and investment," said Cheung.

Cheung said exports growth is slowing down, in line with the bank’s expectation of 6.8 percent this year compared to the government’s 11 percent.

But a decline in US growth is likely to have more impact on remittances than on exports, Cheung said.

Private consumption, government spending and domestic investment all rose in the second quarter, Cheung said, and will likely continue to prop up the economy for the rest of the year.

"A favorable job market, especially services, should support private consumption, especially if OFW remittance inflows are undisrupted," Cheung said.

"An improving fiscal position should also encourage the government to spend more, particularly on infrastructure projects with private-sector participation," she added.

The economy expanded by a robust 7.5 percent in the second quarter, the highest since the first quarter of 2004, on strong growth in the industry and services sector as well increased private and government spending.

The government is expecting 6.1-6.7 percent growth this year and 6.1-6.8 percent next year.

Bangko Sentral ng Pilipinas governor Amando Tetangco Jr. said a sustained growth in the second half would enable the government to "possibly" hit a growth stronger than 6.7 percent this year.