May elections expected to boost the economy

The upcoming May election is seen to boost the economy rather than contribute to the negative factors that threaten the improving economic landscape of the country, an economist said.

During an economic briefing held at Marco Polo Cebu Hotel, Standard Chartered Bank regional head of Research in Asia Nicholas Kwan said although there are negative and positive impacts expected in the Philippine election, in general the country's good economic shape can be sustained.

"People outside always get perception [whenever there is an upcoming election], but this year's Philippine election time would not be a difficult one. Things have been relatively smooth," Kwan said.

The effect of the election in the Philippines could be more on the positive side economically, rather than negative.

Because of the election, the Philippines is bound to generate more spending, as well as investments, although, foreign direct investments (FDIs) will not be the major investment driver.

Standard Chartered Bank's regional economic team believes that investors may require higher risk premium in the run-up to the mid-term elections in May to June.

Government infrastructure plan will attract private sector participation as well as the FDIs. The construction and communications sectors will be given a boost, he said.

This year, he said the Philippines can bank on the services as one of its growth areas, buildings for call centers are up in prime sites, in response to huge demand from Multinational companies (MNCs), which continues to relocate back offices to lower-costs areas like the Philippines.

However, Kwan warned that if drastic change in terms of negative events will happen, the Philippine economy during the election could be in jeopardy, as immediate impact on peso and stock market is expected.

"We should not discount that this place [Philippine] has the ability to surprise people," Kwan said adding that if this happens stock market shock and currency weakening shall be anticipated.

The risk, which seems not particularly high though, is if Arroyo's hold of power turns more fragile leading to abrupt change in the government, then investor confidence could be negatively affected.

Already, the world market today has a volatile economic performance, the Philippines should strengthen its economic platform further, to cushion the global economic volatility and the negative happenings because of election-if ever there is.

He said the Philippines is in dire need of a solid team of economic analysts to direct the country to better positioning, and keep the Philippines on track amid the threat of election [negative] surprises, and the world's economic volatility.

Historically, the Philippines is vulnerable to market volatility triggered by falling confidence in emerging markets, which may see higher volatility as global growth and interest rate cycles turn.

The peso is also seen to outperform regional currencies on relative values and firm domestic strength.

He said in the run-up to mid-term elections and with the US dollar forecast, the peso-dollar may correct mildly from second quarter this year onwards but strengthening back towards the end of the year.