MANILA - THE Philippine economy, which contracted at its fastest pace in two decades in the first quarter, will not slip into recession this year, central bank Governor Amando Tetangco said at the weekend.

Mr Tetangco said the economy was still supported by strong remittances from overseas Filipinos and a sustained deceleration in inflation would boost domestic consumption, a major driver of growth.

'At this time, (there will be) no recession,' Mr Tetangco told reporters when asked if the country would likely suffer the same fate as its neighbours Japan, Singapore, Hong Kong, Thailand and Taiwan, pushed into recession by the worst global economic crisis in decades.

Mr Tetangco echoed comments by the head of policy planning at the National Economic and Development Authority who said on Tuesday the economy was certain to post growth in the second quarter on the back of increased state spending but would likely miss the government's full year growth goal of 3.1-4.1 per cent.

Economic officials said last month leading indicators for the second quarter, including tourist arrivals and electricity sales, suggested a continued downtrend after the economy shrank a seasonally adjusted 2.3 per cent in the first quarter from the previous three months.

An economy is generally considered in recession after posting two consecutive quarters of contraction but Mr Tetangco said that definition was very limited, adding there should be more signs of a widespread deceleration in economic activity.

Remittances are expected to stay flat at US$16.4 billion (S$23.89 billion) in 2009 from a year earlier, according to central bank estimates, better than the 5 per cent contraction predicted by economists in a Reuters poll last month.

Officials said last month Filipinos receiving remittances from relatives abroad were saving rather than spending their money due to uncertainty over the depth of the global recession, but Mr Tetangco said the slowdown in inflation should encourage people to spend more.

The annual inflation rate in May fell to a one-and-a-half year low of 3.3 per cent and the government has said it expects the rate to hit zero in the third quarter, giving monetary authorities scope to cut rates further to lift economic growth.

Last month, the central bank delivered its fifth consecutive rate cut since December, taking the key overnight borrowing rate to 4.25 per cent, a 17-year low.

Most analysts think the central bank will cut rates one more time to 4.00 per cent at its next policy meeting on July 9 to guard against potential price pressures from increasing oil prices.