Rising umemployment is a political nightmare the Arroyo government will experience this year, apart from the country's weak external account and declining exports, Citibank said.

In a report, Citibank said the deterioration in the country’s exports has heightened the threat of more job losses in 2009 and the tightening job market would weaken consumer spending.

As a rule of thumb, Citibank said in its report that jobless rate rises by 1.4 percent, equivalent to about 470,000 laid off workers, for every 1 percent drop in gross domestic product.

According to Citibank, the first wave of job losses had been characterized by the closure of Intel’s plant in Cavite as well as reports of furniture exporters closing up in Cebu and the likelihood of retrenchment of workers in most labor-intensive export industries most vulnerable to the global recession.

It said the next wave could come from returning overseas workers with shortened contracts. Because of weakening global economies, these workers would be facing fewer job opportunities abroad and even less locally.

"Amid a sustained increase in the labor force at a pace higher than the population growth rate, we continue to expect a jobless rate of 9 to 9.5 percent in 2009, up from 7 to 8 percent in previous years," said Citbank analyst Jun Trinidad.

The threat of a higher jobless rate, Trinidad noted, would put pressure on government to sustain its "furious pace" of non-interest fiscal expenditures.

"Rising jobless rate would be a political nightmare for the incumbent local and national leadership as we approach the May 2010 elections," Trinidad stated.

Rather than a drop in headcount, however, Trinidad said Citibank was expecting severe cuts in wages to safe job opportunities available.

Several companies have been mulling a pay cut across all positions in order to prevent massive layoffs.

Edgardo Lacson, president of the Philippine Chamber of Commerce and Industry, said businesses are left with no other option but to cut wages due to the financial crisis.

The Makati Business Club, for its part, said wage cuts are already being implemented in some industries.

Based on a survey it conducted among members, 64 percent said they are slightly affected by the financial crisis and would likely implement compressed work hours while 32 percent admitted they are heavily affected and would implement pay cuts and jobs sharing. Only 8 percent of companies said they are not affected by the crisis at all. With a report from ABS-CBN News