The domestic economy is projected to grow below 3 percent in the first quarter of 2010 with a 2 to 3 percent decline in agriculture output due to El Niño and a strong peso that would limit the stimulative effect of OFW remittances.

In its February issue of Market Call, FMIC & UA&P Capital Markets Research, said the overall outlook for the Philippine economy for the remaining months of the first semester is moderately positive.

"Growth may only be slightly faster in the second quarter due to heightened election spending. Inflation will remain range-bound between 4 to 4.6 percent in the coming months despite the recovery in crude oil and metallic mineral prices, because of weak domestic aggregate demand."

Market Call stressed that "it is not the turmoil happening abroad Greece, Eastern Europe, or Thailand that is impeding a more rapid recovery of the Philippine economy. Rather, it is mother nature that is having a big impact with extremely bad weather slamming the country. In 2009 Q4, it was the typhoons and super floods."

In the first half of 2010, it is El Niño, with its dry spell almost all over the country and is likely to bring down agricultural output by 1 to 2 percent. And even with some recovery in industry and services, it is unlikely that we will see above – 4% gross domestic product (GDP) growth in the first quarter."

"A good news is that overseas Filipino workers (OFWs) dollar remittances have kept a double digit growth pace in the last two months of the year. The other is that tax revenues for December 2009 and preliminary reports for January 2010 give more hope of catching up from the 6.6% fall in 2009. Besides, inflation appears to be stabilizing between 4.0 to 4.5%," said Market Call.

Interest rates are expected to be softer in the coming weeks, as maturing government securities and strong OFW remittances provide huge liquidity to the financial system since the national government finances a portion of its deficits from foreign sources.

"We expect a downward shift in the foreign exchange treasury notes yield curve with a more pronounced drop in short-term rates. This is also premised on unchanged monetary policy stance given the fragility of the domestic recovery." Market Call expects that in the near-term, the fiscal deficit woes and sputtering growth in the euro-zone compounded with the uncertainties over future bank regulations will likely continue to increase volatility in global equities.