The surprise fall in the Philippines' output of goods and services could prove to be the undoing of President Gloria Macapagal-Arroyo, analysts warned. As her election machinery kicks into high gear for the 2004 polls, observers are resurrecting the slogan that Bill Clinton used in his successful 1992 US presidential campaign against George Bush: It's the economy, stupid! 'Historically, when the Philippine economy is bad, there is also political dissatisfaction,' said Romulo Nery, professor of economics at the Manila-based Asian Institute of Management. The economy contracted for the first time in four years in the third quarter due to a a slowdown in manufacturing and agriculture. Economic Planning Secretary Dante Canlas expressed confidence yesterday that agriculture would recover in the final quarter. He said it would be 'very easy' to achieve Manila's full-year GDP growth target of 4.4 per cent. But Professor Nery believes that even this rate of growth is not good enough to make a difference for the country's poor. 'To resolve poverty in about 10 years, we need about 7 per cent GDP growth [annually].' Unfortunately, he said, the Philippine economy had been growing an average of only 2.5 per cent to 3 per cent a year. The country has always had a stagnant economy, according to political analyst Alex Magno. 'We have no sector that can deliver robust growth on a sustained basis. All our sectors are asthmatic. That the third quarter is expanding at a lower rate than the previous quarter does not mean very much at this point.' But if the economy continued to dip, this would have an impact on the political arena, he warned. Mr Magno recalled that the country's first 'people power' revolt, which led to the overthrow of the Marcos regime in 1986, took place after two years of economic contraction. Analysts say Mrs Arroyo, who succeeded disgraced president Joseph Estrada some 22 months ago, still has more than a year to mend the economy before she stands for election. Businessmen had pinned high hopes on her because of her background in economics. Unfortunately, as one businessman said, 'she has failed to deliver'. 'The hoped-for investments haven't come because her government is perceived to be corrupt,' he said. Next year promises to be a difficult one for the Arroyo administration. Businessmen doubt the government can do much to bolster the economy, given its swelling budget deficit and debt.