THE UNITED Kingdom’s (UK) move to leave the European Union (EU) would have limited impact on the Asia-Pacific region, debt watchers Fitch Ratings and Standard & Poor’s (S&P) said.
In a statement Thursday, Fitch said prolonged uncertainties over the political atmosphere in the UK “could weigh on growth in the region.” But, “it remains far from clear that such a sustained market reaction will develop. Some of the negative ’risk off’ market moves that occurred in the immediate aftermath of the Brexit vote have already been partly unwound this week,” it said.
Fitch also noted the reaction from Asian markets was muted after the Brexit.
It said the move of central banks, including the Fed’s possible decision to slow down the pace of its rate increases, could temper market volatility.
Fitch also noted the expected slowing down of the UK economy post-Brexit would bring about “limited” impact on trading partners. It said Asian countries’ exports to the UK were equivalent to only less than 3.5 percent of the total.
It warned “indirect trade effects should the Brexit vote lead to wider political instability and a broader slowdown in Europe could be more significant for Asia, with the EU as a whole accounting for a much larger share of Asian exports than the UK alone,” Fitch said. “But the effects should take time to materialize, and Fitch believes that it is the smaller economies in Europe that are most at risk from Brexit—as opposed to the larger economies such as Germany and France which account for the bulk of Asian exports.”
Nonetheless, inroads in free trade with the UK may even be boosted by the Brexit, Fitch said. “Over the long term, it is also possible that a UK outside the EU may be able to make quicker progress on trade liberalization with Asian countries than as a member of the EU.”
According to Fitch, “emerging Asia will remain the fastest-growing global region.”
“Rising political uncertainty in Europe may lead to some downward revisions to regional growth projections, depending on how serious this turns out to be. However, China is likely to remain a much more significant driver of economic outcomes in Asia-Pacific than Brexit, while risks from tightening US monetary policy also remain a key challenge,” Fitch said.
S&P Global Ratings also noted of “weak” relevant linkages between Asia-Pacific economies and the repercussions of the Brexit.
“Whether we get any measurable real impacts from Brexit depends on a couple of things. One, on how long the market volatility lasts, and whether it begins to spill over to the real economy. And two, whether we get any political aftershocks, including EU exit/entry votes, from other European markets,” S&P Global Ratings’ Asia-Pacific chief economist Paul Gruenwald said in a recent statement.
“Brexit’s market impact is likely to be significant in the near term, particularly in terms of stock market and currency volatility. The medium-term impact on Asia-Pacific markets, however, is likely to be limited as investors make decisions based more on economic and financial fundamentals rather than just sentiment,” said S&P Global Ratings credit analyst Terry Chan.