Poll spending expected to boost economic growth

MANILA, Philippines - Investment bank Barclays Capital said election spending is expected to boost economic growth in the Philippines during the quarters before and after the May 10 elections.

In a research note on the Philippines entitled “Elections to Boost Growth,” Barclays Capital economist Prakriti Sofat said the May 10 presidential and congressional elections would boost gross domestic product (GDP) growth particularly in the first quarter of the year.

“Based on the experience of previous ballots, these elections are likely to provide a lift to the economy,” Sofat stressed.

The investment bank pointed out that sequential GDP growth were posted two quarters before and after the 2004 synchronized presidential, congressional, and local elections as well as the 2007 national and local midterm elections.

“As evident, both in the 2004 and 2007 elections, growth accelerated in the quarter preceding the polls. This was on account of election-related spending, with the domestic demand getting a boost, particularly investment and private consumption,” the economist added.

Sofat pointed out that GDP growth likewise strengthened during the 2001 Senatorial elections by the growth was over-shadowed by the global recession experienced in 2000 and 2001.

Likewise, she added that elections also have mixed impact on the stock market as the Philippine Stock Exchange (PSE) index gained after the 2001 and 2007 elections but weakened after the 2004 polls. The peso also strengthened during the 2001 and 2007 elections.

About 50 million voters are expected to troop to 75,000 precints all over the country of May 10 wherein the country would hold its first ever automated elections.

“The hope is that an automated process will make the elections cleaner, but the system’s novelty means that a successful outcome remains uncertain. We think that some reversion to manual ballot-counting is likely and this may result in delays,” Prakriti said.

According to her, delays would have an immediate negative for the asset prices but would rebound after the president-elect is officially announced.

Barclays Capital sees the country’s GDP expanding by 4.3 percent this year from 0.9 pecent last year. The investment bank’s growth outlook was more optimistic than the growth target of 2.6 percent to 3.6 percent set by economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC).

The growth this year would be fuelled by election-related spending and strong private consumption supported by overseas Filipino workers’ remittances as deployment remained healthy through 2009.

On the other hand, Barclays Capital sees inflation kicking up to six percent this year from 3.2 percent last year. This would exceed the BSP’s inflation target of 3.5 percent to 5.5 percent for 2010.

Despite the increase, the investment bank said the BSP’s Monetary Board would likely start tweaking its key policy rates starting the third quarter of the year. Monetary authorities slashed the rates by 200 basis points between December 2008 and July 2009 that brought the overnight borrowing rate to a record low of four percent and the overnight lending rate to six percent.