Reactions from economists

Europe. In any case, with Brexit happening, it is a blessing for Malaysians frequenting London on leisure or business, as well as those paying for their children’s education. trade competitiveness via the loss of tariff-free trade – eventually to what extent this would hurt the overall gross domestic product (GDP) growth.

However, in the long run, the UK is expected to renegotiate a trade pact with the EU bloc or via the World Trade Organisation – this could minimise the tariff dampener on UK exports.

For Malaysia, the benefit could be largely from travel and education than merchandise exports.

Malaysia’s exports to the UK is only over 1%, while another 9% goes to the euro. As such, any economic downturn in the UK would unlikely affect Malaysia’s trade significantly. However, our exchange rate against the pound sterling would improve in our favour, benefitting our imports from the UK (1.1% of total).

The ringgit could stabilise at lower levels of around 5.60 per sterling, and this would also help mitigate the rising cost of education in the UK. uncertainties, which will have a veritable impact on business decisions and the real economy, especially in Europe.

Brexit will cause a knee-jerk reaction to the financial markets – currencies being the most vulnerable. The volatility in equities and bonds cannot be underestimated in the short term, but will eventually subside when a clearer picture emerges.

The short-term impact will depend, to some extent, on damage control responses by leaders of the UK and the EU. The long-term impact of Brexit hinges on the new relationship between the UK and the EU. This new relationship will, however, depend on negotiations (over two years) to negotiate the UK’s exit from the EU.

Another risk, which is more worrisome, is that the UK’s decision may prompt other countries in the region to renegotiate their relationship with Brussels, or worse, consider leaving the EU altogether. The impact of the EU fragmentation, both regionally and globally, is expected to be significant.

Fortunately, the impact on Asian economies, Malaysia included, will be rather minimal, judging by trade relations. Asia exports less than 1% to the UK, while Malaysia’s exports and imports to the UK are roughly 1% of total trade.

Although the UK accounts for only 2.5% of global GDP, the indirect impact of Brexit on global growth as a result of uncertainties emanating from it cannot be underestimated. Capital flows will also be affected as investors increasingly seek safe-haven assets, leading to the further strengthening of the greenback and yen in the near term.

In this regard, it is comforting to know that Bank Negara has pledged to remain vigilant and stands ready to support the smooth and orderly functioning of the domestic financial markets. Notwithstanding this, we see the risks facing the Malaysian ringgit (against the US dollar) tilted more towards the downside in the near to medium term.