German firms see slower investments in PH this year

German businessmen in the country are still positive that the domestic economy will continue to grow over six percent again this year, but see slower expected investments due to the planned reduction of incentives under the pending TRABAHO bill, volatile foreign exchange, and the US-China trade disputes.

An annual review of 2018-2019 conducted by AHK World Business Outlook on the members of the GermanPhilippines Chamber of Commerce and Industry (GPCCI) revealed that German businesses are generally bullish in their economic outlook in the country in 2019.

“GPCCI is equally looking forward to a positive 2019, expecting a strong growth rate of over six percent again, despite challenging global trends, volatility due to trade disputes, growing protectionism and, in Europe particularly, the Brexit,” said the new report.

However, the business outlook, which was based on two survey editions conducted in spring and autumn of 2018 turned less optimistic in the latter study compared to the former survey.

The report noted a decrease in expected investments from the GermanPhilippine business community.

“The ongoing discussion about TRAIN II or the TRABAHO Bill is likely to be one of the factors contributing to the investment slowdown,” according to the report. TRAIN II builds the second part of a tax reform for the country. The proposed lowered corporate income tax from 30 percent to 25 percent is expected to benefit companies and shall boost the country’s attractiveness.

However, the proposed reductions of incentives were met with skepticism as the current incentive package is considered globally competitive. The abolition of incentives would mostly impact export-oriented companies that are often dependent on foreign investments. Finalization of the bill was also postponed after the midterm elections, leaving this issue unclear for investors in the upcoming months.

The autumn edition identified volatility of the exchange rate as major risks in doing business in the country (45 percent) followed by economic framework (41 percent).

One factor affecting foreign exchange rate is inflation. Businessmen, however, expects inflation to ease this year as low oil prices and the rice tariffication could tame price pressures.

The second most important risk factor, the economic framework, is expected to be further improved following the current reform agenda, particularly the implementation of the newly signed law on Ease of Doing Business. The law aims to cut red tape and simplify business processes.

The two risk factors that decreased in significance were: securing skilled labor and the concern on infrastructure challenges. German businessmen see potential opportunities in the “Age of Golden Infrastructure” mantra of the Duterte administration under its ambitious “Build, Build, Build” program with planned investments of $160 billion until 2022.

“The BBB program is seen as an economic catalyst propelling the construction industry and associated sectors. It may drive the entire economy for years to come,” the report said.

The report also cited bilateral trade volume of over $7 billion in 2018, another record high in the PhilippineGerman trading history.

German exports to the Philippines grew 32 percent to $3.04 billion in 2018. Meanwhile, the Philippines enjoys a trade surplus with Germany with exports worth $4.34 billion.

While the Philippines mainly imports high-end machinery, equipment and technology from Germany, the country exports electronics, services and food products to Germany.