German Firms Optimistic on Philippine Economy Despite High Power Costs

German businesses in the Philippines remain confident in the country's economic development despite high electricity prices, with 61% forecasting confidence in business development. The survey identified key risks, including economic policy conditions and high energy prices, which need to be addressed to create a favorable business environment.

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Bijay Laxmi
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German Firms Optimistic on Philippine Economy Despite High Power Costs

German Firms Optimistic on Philippine Economy Despite High Power Costs

German businesses operating in the Philippines remain confident in the country's economic development over the next 12 months, despite citing high electricity prices as a top concern, according to the AHK World Business Outlook Spring 2024 Survey conducted by the German-Philippine Chamber of Commerce and Industry (GPCCI). The survey, which involved nearly 70 companies engaged in German-Philippine business relations, found that 61% of firms forecast confidence in business development for the coming year.

The optimism comes even as the Manila Electric Company (Meralco), the Philippines' largest power distributor, recently announced a 46.21 centavo rate increase to P11.4139 per kilowatt-hour (kWh). This translates to a P92 increase in the monthly bill for a typical household consuming 200 kWh. The rate hike was primarily driven by higher generation charges due to increased costs from the Wholesale Electricity Spot Market (WESM) and Power Supply Agreements (PSAs).

Why this matters: The confidence of foreign investors like German firms is crucial for the Philippines' economic growth, and addressing concerns like high power costs can help create a more favorable business environment. If left unaddressed, these challenges could hinder the country's ability to attract and retain foreign investment, ultimately affecting its economic development and competitiveness.

Despite the Philippines having one of the highest energy prices in Southeast Asia, next to Singapore, German firms remain bullish on the local economy. The survey showed that 50% of German-Philippine businesses are optimistic about their current situation, while projections for the local economy in the next 12 months increased by 17 points to 55%. Investment and employment figures also showed continued optimism, rising to 44% and 61%, respectively.

GPCCI President Marie Antoniette Mariano welcomed the positive sentiment, stating, "It's encouraging to see such confidence from businesses involved in German-Philippine relations, forecasting a bullish local economy. This optimism surely points to a thriving environment in the Philippines for both investment and job creation over the next 12 months."

However, the survey also identified key risks that could impact future growth, with economic policy conditions, including complex regulations and frequent policy changes, ranking as the top concern. High energy prices, which affect profit margins and operational costs, were the second major worry, followed by supply chain disruptions and infrastructure challenges.

To address these issues, German businesses reported taking diversification measures such as expanding supplier networks and exploring new sales markets. However, they also cited difficulties in finding suitable suppliers or business partners, high costs of expanding operations, and increased legal and regulatory hurdles as obstacles to diversification.

GPCCI Board Director and Policy and Advocacy Chairperson Dr. Marian Norbert Majer emphasized the need for collaboration between the government and private sector, saying, "To capitalize on the current economic optimism, it's imperative that the Philippine government work closely with businesses to resolve these identified challenges. Addressing these issues can help create a more predictable and favorable business environment and ensure that this bullish momentum translates into substantial outcomes that will help the Philippines attain its sustained economic growth."

The upbeat outlook from German businesses comes amid recent high-level engagements between Germany and the Philippines, including German Foreign Minister Annalena Baerbock's visit in January 2024, President Marcos' trip to Germany in early March, and the convening of the 2nd Joint Economic Commission in mid-March. As the Philippines grapples with high power costs while striving to maintain its economic growth trajectory, the continued confidence of foreign investors like German firms will be crucial in navigating these challenges and realizing the country's full potential.

Key Takeaways

  • 61% of German firms in the Philippines are confident in the country's economic development over the next 12 months.
  • High electricity prices are a top concern, with a recent 46.21 centavo rate increase announced by Meralco.
  • Despite concerns, German firms remain bullish on the local economy, citing optimism in investment and employment figures.
  • Economic policy conditions, high energy prices, and supply chain disruptions are key risks to future growth.
  • Collaboration between the government and private sector is needed to address these challenges and create a favorable business environment.