Local stocks fell by 1.29 percent across the board while the peso weakened by 41.5 centavos as global markets reeled from Great Britain’s game-changing decision to break away from the European Union.
The bloodbath across global markets yesterday did not spare local equities and the local currency with the main-share Philippine Stock Exchange index shedding 100.06 points or by 1.29 percent to close at 7,629.72 and the peso depreciating to 46.950 from Thursday’s 46.535 against the US dollar at the Philippine Dealing System.
READ: PSEi tumbles as ‘Brexit’ vote prevails
Economists and financial experts, however, believe the Philippine economy has enough cushion and the underlying fundamentals are strong enough to counter head winds from a slowdown in the United Kingdom and the euro-zone arising from “Brexit.”
April Lee-Tan, head of research of COL Financial, said fundamentally, Brexit should not have a significant direct impact on the Philippines.
“The UK is not part of the country’s top 10 export destinations—although the UK accounted for around $1.5 billion of our total OFW (overseas Filipino workers) remittances last year,” Tan said.
“The impact is more indirect as the uncertainty as to what would happen after a Brexit is causing people to switch to safe haven currencies—like US dollar, Japanese yen, Swiss franc—and safe haven financial products like sovereign bonds,” Tan said.
ING Bank Manila senior economist Joey Cuyegkeng said the UK decision might also affect Asia and the Philippines, as seen in the financial markets. “But major central banks and major governments are likely to moderate the impact of Brexit,” he said.
“We believe that the economy can withstand such external developments. Higher fiscal deficit spending focused on higher infrastructure spending and greater disposable incomes would likely keep Philippine economic growth in the area of 6-7 percent,” Cuyegkeng said.
Frederic Neumann, cohead of Asian economic research at HSBC, said that while markets were in a tizzy now, he believed Asia should come through this episode “with only a few scratches.”
“The trade exposure to the UK is minimal for most Asian economies, and risks to direct bank financing from UK financial institutions appear manageable,” Neumann said.
Malacañang said the Philippines should fortify itself against possible vulnerability by continuing to strengthen its macroeconomic fundamentals, increase market confidence and deal with remaining constraints to growth.
The Bangko Sentral ng Pilipinas (BSP), however, sees volatility in domestic markets in the aftermath of Brexit.
“We can expect more volatility in domestic markets in the near term. Even as the direct Philippine exposure to the UK is relatively small, we will watch the impact on us via contagion from moves in the US dollar,” BSP Governor Amando M. Tetangco Jr. said in a text message.
Amid expected market volatility, the BSP “is ready to provide liquidity to our market as needed,” Tetangco assured.
As for the peso, Tetangco noted that “while regional currencies are down, the peso remained in the middle of the pack.”
BSP Deputy Governor Diwa C. Guinigundo said monetary authorities were “closely monitoring the foreign exchange market and we remain prepared to act in order to ensure orderly transactions and smooth wild volatility.”
Outgoing Finance Secretary Cesar V. Purisima also said Brexit would only have a minimal impact on the Philippines.
“The improvement in the fundamentals of the Philippine economy will put us in good stead but should not lull us into overconfidence,” Purisima said.
He pointed out that the economy “has a robust domestic consumption core, insulating it from the bulk of Brexit’s effects.”
But Purisima cited the need to look into the possible effect of Brexit on Filipinos working in the UK.
“About 200,000 Filipinos work in the UK, sending around $1.4 billion in 2015, about 5.6 percent of the total remittances sent back home,” he said.
Local business groups and foreign chambers said Brexit was unlikely to have a significant direct impact on the Philippines and its bilateral relations with the UK.
Henry V. Schumacher, vice president of the European Chamber of Commerce in the Philippines, expressed optimism Brexit would not make a dent on Philippine trade with British firms, nor will this affect the country’s ongoing free trade agreement negotiations.
The Philippine Chamber of Commerce and Industry (PCCI) and the Philippine Exporters Confederation also do not expect Brexit to have a direct bearing on the country’s economy.
PCCI president George T. Barcelon explained there might be an impact insofar as trade barriers are concerned. With Britain’s exit from the EU, there may be some preferential concessions that may no longer be applicable to the UK.
Philexport president Sergio R. Ortiz-Luis Jr. likewise believed the impact, if any, would most likely be indirect at least for Philippine exporters.
“I don’t see any direct effect of Brexit on Philippine electronics exports. The UK is not among our top export destinations,” added Dan Lachica, president of Semiconductor and Electronics Industries in the Philippines Inc.
As of end-2015, the total bilateral trade between the Philippines and the UK was estimated to have grown by 30 percent to roughly $2.6 billion last year. With reports from Nikko Dizon, Miguel Camus and Estrella Torres
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