The World Bank expects the Philippines to hit an "outright recession" with the economy seen to shrink by half a percent this year.

In its latest Global Development Finance report, the multilateral lender said local gross domestic product (GDP) would contract by 0.5 percent in 2009, given the country's heavy trade relations with Europe and the United States, two major economies which are hardest hit by the crisis.

Despite this, the World Bank said the Philippines is likely to recover to a 2.4-percent growth by next year and a 4.5-percent expansion in 2011.

"GDP for the region (East Asia and Pacific) is anticipated to revive over the course of late 2009 and into 2010, though for several countries, including Malaysia, Thailand and the Philippines, outright recession is anticipated this year," the World Bank said. In April, the bank projected a 1.9-percent growth for the Philippines.

Several other international institutions have given bleak forecasts for Philippine economic output this year.

The International Monetary Fund downgraded its growth projection from 0 percent to -1 percent while London-based Fitch Ratings cut its estimate to only 0.1 percent from 0.5 percent. The Asian Development Bank had a more optimistic outlook for the Philippines with a GDP growth forecast of 2.5 percent.

After rebuffing multilateral and international rating agencies for announcing targets drastically lower than the government's, the country's economic managers earlier announced that the growth forecast for 2009 has been downscaled to a range of 0.8 to 1.8 percent.

The Development Budget Coordination Committee, the inter-agency body that sets the government's macroeconomic targets, previously projected a growth range of 3.1 to 4.1 percent for GDP this year.

The government's lowered targets did not come as a surprise, especially after the economy's dismal 0.4-percent growth for the first three months of 2009.

Recession?

Government statistician Romulo Virola of the National Statistics Coordination Board hinted that the Philippines is "on the brink of recession" weeks ago, prompting doubts even among some members of the economic team if the P330-billion economic stimulus package, which was supposed to cushion the country from the impact of the global financial storm, actually worked.

Technically, a country slips into recession when it posts negative GDP growth for two consecutive quarters. Albay governor and presidential economic adviser Joey Salceda, for his part, said the Philippines would enter a recession if GDP growth drops below the population growth rate of 1.92 percent for two consecutive quarters.

Officials of the Bangko Sentral ng Pilipinas were particularly vocal about their misgivings over government spending, whose lackluster performance they blamed for the dismal first-quarter growth. Monetary officials stressed they have done their part since monetary tools—from interest rate cuts to special depository accounts—have greased the financial system to spare it from credit freezes that hit some rich countries.

Meanwhile, other key economic indicators—remittance flows, exports, foreign direct investments, among others—have been reflective of the ailing economy.

Exports, which account for 40 percent of local economy and a major employer, have plunged at a range of 30 to 40 percent for the past 7 consecutive months. Foreign investments have dwindled as well.

Yet, Socioeconomic Planning Secretary Ralph Recto continued to stress the positive. He said the Philippines, unlike its neighbors in Asia and other developing countries elsewhere, is still posting a positive, albeit much slower, growth rate.

"We remain confident that the Philippine economy will maintain a positive growth this year," he said in a statement released Wednesday.