The report, titled "G3 slowdown: Asia's least and most exposed economies" contained good and bad news for The Philippines. The good news is that the local economy is expected to grow by 5.6% this year - buoyed by surging domestic demand and strong remittances from overseas Filipino Workers (OFWs). The bad news is that this figure represents a steep decline from the 30-year high of 7.3%, which the country posted last year.
The report was equally hazy about the country's exposure to the expected slowdown in the US, Japan and the European Union. The Philippines was neither in the category of "least at risk" nor "most at risk". Instead, it joined India, Korea, Malaysia and Thailand in the middle-of-the-road, at "some risk".
The report verifies what many were beginning to believe - that 2008 will be a pivotal year for The Philippines, with fundamental questions concerning the sustainability of the country's past performance and its reliance on traditional export markets to be finally answered.
For its part, Credit Suisse did not consider the 1.7% drop in Gross Domestic Product (GDP) growth to be worrying. According to the report, the 5.6% growth projected is still "decent" considering the current global environment. When this number is put into perspective among the growth forecasts for the US, EU and Japan, which are all under 2%, one can see why the Swiss bankers were cheerful despite the Filipino slowdown.
This growth is expected to be sustained through OFW remittances, which many believe will continue growing in 2008, albeit at a slower pace. These payments, which grew by 13.2% last year to $14.4bn, played a key role in boosting domestic demand by 6% in a broad range of products.
The hope among many analysts, investors and market watchers, is that this growing domestic demand combined with growth in the service sector can offset any losses connected to exports to the sluggish G3 economies.
There is reason to believe that such an outcome is not only possible but likely. The services sector has seen strong growth in 2007 due to the flourishing of the business process outsourcing (BPO) industry. The sector posted revenues of $4.8bn, up nearly 50% from 2006. Employment rose 27% to 300,000. Encouragingly, this industry is less affected by a slowdown in the G3 economies than most.
"If there is a recession in the US, you will see companies trying to cut costs with more outsourcing," Trade and Industry Secretary Peter Favila told the local press.
Julian Ramos Garcia, president of E Scribir Inc., a provider of various outsourcing services, echoes this claim, "With a recession looming in the US, we are getting a lot more calls because people want to cut their costs." With such news, the Business Process Association of the Philippines (BPAP) expects the sector to be posting revenues of $13bn and employing more than one million people by 2010.
There is also reason to believe that the dip in exports will not be as severe as many fear. Despite rising input costs, mediocre crop yields and the 19% gain that the peso saw in 2007, exports finished last year remarkably well, posting a 21% year-on-year increase in December. With the appreciation of the peso expected to decline in 2008 and growing ties with consumer rich China, such growth could be sustained despite a slowdown in traditional export markets.
Much of this positive picture is premised on hypothetical "ifs". If OFW remittances remain high, consumption will continue to grow. If US companies choose to outsource their back offices rather than simply cutting their workforces then the BPO industry and the service sector in general will expand.
The bottom line emerging from this story is clear. The Filipino economy has in no way decoupled from the G3. While the Credit Suisse report may not have given market watchers a clear vision of how 2008 will unfold, it did make something very understandable. Asia's trade linkages with these large markets have grown-not shrunk-in recent years. Something will have to make up the difference.