Although outcomes of the UK Referendum decision will be felt globally – largely in the form of increased volatility among currencies and stock prices – adverse effects on Asian economies are projected to be relatively mild. The most considerable damages are expected to land in Hong Kong, Vietnam and India, where trade ties to the UK are strongest; however, damages to region will be limited by Asia’s minimal trade ties to Britain.
According to London based research firm, Capital Economics, Asia’s exports to Britain account for a mere 0.7% of the region’s GDP. In their worst-case scenario projection, even a 25% decrease in the UK’s imports would only amount to a 0.2% hit to the region’s GDP. [1] Brexit may be set to cause serious upheavals to global economies, but direct effects on Asia’s exports will be minor.
In Thailand, international economic upheaval may actually provide opportunities to scale foreign direct investment (FDI) from British and European investors. In an interview featured in the Bangkok Post, Mr. Stanley Kang, Chairman of the Joint Foreign Chambers of Commerce in Thailand noted that: “Most EU and UK companies that invest in Thailand are multinational companies that do so during periods of uncertainty at home. This could be a chance for Thailand to attract more investment if it can sustain political stability”. [2]
In the short term, international foreign direct investment (FDI) is likely to slow down as investors seek to reduce their losses; however, persistent turbulence in the European economy may cause investors to move into Thailand and spread into ASEAN. In spite of this perceived opportunity, however, investors across Asia should stay alert to secondary effects of Brexit. Two sizable threats to Asian economies loom on the horizon.
First, the development of free trade agreements (FTAs) between Asian nations, the EU, and the UK will suffer considerable setbacks as a result of Brexit. Although Asian nations may still be willing to enter FTAs with the UK, its value as an entry point to the European economy disappeared with Brexit. This will sedate progress toward establishing trade ties between Europe and Asia, and significantly effect the UK’s position as an international trade hub. A second mid-term threat to Asian trade is Brexit’s adverse effect on the broader European economy. Europe represents a considerable 17% of Asia’s total export market, and a weaker European economy may spell considerable challenges for Asia’s export markets.[3]
A key consideration over the coming months will be how the UK and Europe work to mitigate adverse effects of Brexit on both local and global economies. As investors determine whether or not to step out of Britain and the EU, Asia stands to scale inbound FDI, provided it can sustain political stability and foment an enabling business environment.
