Economies across Asia have been plagued by recession. Few analysts believe the Philippines can escape the so-called Asia 'contagion ef-fect', but so far the country has been less affected than most.

The Philippines is only just tipping into recession now, and figures are unlikely to hit the proportions elsewhere," says Mark Robinson of Ro-bert Flemings.

The country underwent a major political adjustment in the 1980s and economic transition in the early 1990s, and this has kept it somewhat insulated from the early effects of the Asian crisis. But now, says Robinson, people are starting to doubt the new government's motives.

"Things in the Philippines turned very negative, especially in the last two mon ths," says Richard Ziegler of HSBC Securities. Two months ago President Joseph Estrada came into office and economists say the market has shown a complete lack of confidence in the new president.

Stocks have reacted swiftly to this mood of confusion and concern, declining rapidly in the last two months. The Manila Composite index has fallen heavily this year, but 30% of its 35% year-to-date slide has happened in the last two months.

Jojo Gonzales, economist and stategist at Merrill Lynch in the Philippines, says the market is suffering both from uncertainty and frustration with the new government.

Recently, market worries emerged when Eduardo Conjuangco, who was reinstated as chairman of San Miguel Corp - a giant of the Philippines economy - started to sell of some of the company's assets. Jitters created by this inevitably increase the risk premium on stocks, says Robinson. This could even signal a reawakening of the Marcos nightmare, he says. "Foreign investors are just saying - clear out," he says.

Short term interest rates were raised in mid-August, but longer term rates remain-ed broadly stable. "This shows the country is not in such bad shape," says Robinson. And compared with other Asian economies, the Philippines is unlikely to see a bad debt problem on anything like the scale witnessed elsewhere. The local banking sector only really started large scale lending in 1994 and 1995, so the magnitude of bad loans would be smaller, says Robinson.

No matter how it compares with that seen in other countries, Ziegler says there is probably a banking crisis looming in the Philippines.

Flemings forecasts negative GDP growth for the Philippines over the next quarter, at -1.2%. Second quarter GDP was much worse than generally foreseen and expectations for economic activity are likely to come down further. This will put pressure on share prices, says Gonzales.

But there may be an early end to this economic dip. "Following the view of a weaker economy, we're be-ginning to think by the way imports have been crushed, that there'll be less pressure on the peso," he says.

Merrill Lynch sees GDP growth at 1% next year, while HSBC Securities is less optimistic, forecasting 0.5% GDP contraction this year and a 1% fall next year. Rachel Fixsen"