The economy of the Philippines is being battered by rising oil and food prices amid worldwide fears of recession.

'Topsy-turvy economy'

"In a wink of an eye, the world economy turned topsy-turvy. The rise in oil and food prices resulted in a worldwide crisis," Arroyo said on Monday.

"While we can take some comfort that our situation is better than many other nations, there is no substitute for solving the problem of rice and fuel here at home," she said.

Arroyo also used her eight state of the nation speech to rebuff calls to scrap the hugely unpopular value added tax, saying short term relief cannot be at the expense of long term reforms.

"Take away VAT and we strip our people of the means to ride out the world food and energy crisis," she said. "We have come too far and made too many sacrifices to turn back now on fiscal reforms."

However, Renato Reyes, the secretary general of Bayan, a non-governmental organisation promoting democracy and rights for native Filipinos, said: "The real state of the nation right now is no different from a sinking ship.

"We have a sinking economy, we have a sinking presidency, and the people have had enough of the lies and deception that have been peddled over the past seven years," he said.

Condition 'worsening'

Reyes said that not much has changed from her first address, if anything, conditions have only worsened for the poor.

"There are more poor people now, more people are unemployed, more people are going hungry. We have a very severe rice crisis. So there's really nothing for her to be proud about regarding her achievements over the last seven years," he said.

An opinion poll released before the speech gave Arroyo an approval rating of  just 22 per cent, with a third of respondents saying they believed she is using rice subsidies for the poor to boost support for administration candidates in the 2010 general election.

"If she keeps on doing what she’s doing, the only legacy that people will remember her will be the most corrupt, the most secretive government, and the one who really drove the prices high and keep the people in poverty," one protester said on Monday.