The Philippines is gearing up for its upcoming presidential and congressional elections in May 2010 amid increasing political uncertainty. The ruling Lakas-Kampi-CMD will be facing a resurgent opposition, benefiting from the revival of democratic fervour stemming from the death of former President Corazon Aquino, who was instrumental in overthrowing the despotic Marcos administration via the ‘People’s Power’ revolution in 1986. However, fragmented opposition with multiple presidential contenders will probably mean that the incumbents, Lakas-Kampi-CMD, will remain in power. Meanwhile, the economy is expected to register positive growth in 2009 and 2010, respectively, on the back of robust remittances and effective fiscal measures, despite a languishing external environment.

Following the death of democracy icon and former President Corazon Aquino in August 2009, we expect Senator Benigno ‘Noynoy’ Aquino III – the only son of the revered stateswoman – to mount a formidable challenge to the incumbent Lakas-Kampi-CMD camp in the forthcoming presidential elections in May 2010. Aquino, who belongs to the opposition Liberal Party, announced his candidacy on September 9 2009 after former standard-bearer Mar Roxas stepped down in favour of him. Nevertheless, the existence of other popular contenders – especially Senator Manuel Villar who has been topping recent opinion polls – may split opposition votes, allowing the ruling Lakas-Kampi-CMD to reclaim power next year.

The economy expanded by a stronger-than-expected 1.5% year-on-year (y-o-y) in Q209, which was stronger than the 0.6% growth registered in the preceding quarter. Notably, growth in private consumption – which comprises more than 75% of real GDP – accelerated to 2.2% from 1.3% in Q109, boosted by robust growth in remittances. Indeed, remittance inflows increased by 2.9% y-o-y in January- June 2009 to reach a record US$8.5bn, led by a surge in non-US contributions. Going forward, we expect strong remittances and ample fiscal stimulus to push the economy towards a somewhat higher growth trajectory, therefore revising our 2009 and 2010 growth forecasts upwards to 1.5% and 2.6% respectively.