Davao bombing effect on PHL economy only temporary —experts

While the recent bombing in Davao City may have negative implications on the Philippine economy, analysts on Sunday said this is only expected to rattle the country for a short-term.

"The effect would be felt in the short run. Investments and business confidence can be put on hold," Cid Terosa, Dean of the School of Economics of the University of Asia and the Pacific (UA&P), said in a text message.

His statement comes after the bombing in Davao City later Friday, where 14 people were killed and dozens more were wounded.

Hours after the bomb attack in his home city, President Rodrigo Duterte declared a nationwide state of lawlessness.

Terosa noted that even with the investment and business confidence put on hold, conditions are seen to improve given government efforts to curb such issues.

"When there are signs of credible commitment to address the situation, investors and businessmen will revert back to their usual behavior," he said.

This was mirrored by John Paolo Rivera, program manager at the Asian Institute of Management (AIM), who said that negative effects are only expected to be temporary.

"Regardless of the aftermath, I suspect this is temporary since we're still in the heat of the moment and Duterte enjoys a significant trust rating," he said in a separate text message.

Duterte in July snagged a "big" trust rating of 91 percent the week following his assumption of office, according to a Pulse Asia survey.

Still, Rivera said there may be a decline in the trust on the security of financial markets, noting that some countries have already imposed travel advisories against the Philippines.

Australia, United States, United Kingdom, Canada, and Singapore have issued travel warnings to their citizens following the explosion on Friday.

Rivera maintained, however, that markets are expected to be "controlled" given the "overwhelming trust" in the administration. "(I)t is just a temporary shock," he said.

"Tourism is down (due to travel ban); financial markets might be down (we'll see tomorrow); but there might be hope in government spending and private consumption," he said.

"An act of terrorism will definitely slow down the economy but I believe there will be other avenues where we can catch up from the bombing. That's why I expect this to be temporary but I don't know when can we catch up," he added.

Financial markets

In terms of the local equities, AB Capital Securities Inc. Equity Analyst Victor F. Felix said the recent bombing may spook investors further, but the immediate effects of the incident may only be seen on Monday, as trading on the local bourse is currently on break for the weekend.

"No word yet from investing community over the weekend. Since violence is expected to escalate in that region, property companies exposed to Davao may take a hit," he said in a separate text message.

Among listed companies with operations in Davao which Felix noted are SM Prime Holdings Inc., Megaworld Corp., Vista Land and Lifescapes Inc., 8990 Holdings Inc., and Italpinas Development Corp.

"Bombing was a black swan event, it is possible that this may spook foreign investors further. We'll see tomorrow if this is the case," he said.

He noted, however, that investors are starting to pull out mainly on high valuations, and fears that the US Federal Reserve would increase its interest rates later this year.

"Main reason is that valuations are expensive, and US rate hike fears in September or December," he said.

Felix was referring to pronouncements of Fed Chair Janet Yellen last month, reinforcing the US central bank position to raise interest rates later this year.

"In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," according to Reuters report, quoting Yellen.

For the foreign exchange (forex) market, UA&P's Terosa said no drastic changes are expected.

"I don't think the forex will drastically weaken since the situation is currently being emphatically addressed," he said.

Philippine authorities are investigating the Davao blast, as they are now on the lookout for three "persons of interest," including a man and two women.

Hours after the bombing on Friday, Duterte declared a state of lawless violence in the country, effectively increasing military and police present throughout the country to combat not just terror threats, but also to step up the campaign against illegal drugs, and to curb the increase in extrajudicial killings.

Duterte cleared, however, that his recent order is not martial law.

"It's not martial law but I am inviting now the Armed Forces of the Philippines, the military and the police to run the country in accordance with my specifications," he said, noting that he will not be suspending the writ of habeas corpus. —ALG, GMA  News