Slower EU growth to have greater impact
KUCHING: Given the UK’s vote to leave the EU last month, RAM Ratings finds that contagion risk stemming directly from the UK will have limited implications on Malaysia’s exports and direct investments.
A more immediate concern, however, would be the impact of potentially significant growth deceleration in the EU (ex-UK), to which Malaysia has a larger exposure.
“The UK accounted for a mere 1.2 per cent of Malaysia’s exports in 2015 while the EU (ex- UK) contributed 8.9 per cent,” it said in a commentary yesterday.
“Between 2011 and 2015, the UK’s and Europe’s (ex-UK) shares of average outward foreign direct investment ( FDI) came up to a respective 3.8 per cent and eight per cent.
“Inward FDI from Europe (exUK) has also consistently been a major source of investment, as opposed to the UK, which has been divesting in the last few years.”
From a fiscal perspective, Brexit does not currently materially af fect Malaysia’s respective gA2/stable and seaAAA/stable sovereign credit ratings on the global and Asean rating scales.
Although financial disruptions stemming from Europe are not expected to cause a severe deterioration in the Malaysian Government’s fiscal position due to the low proportion of foreign currency debt, downside risks associated with EU growth deceleration and the impact
The UK accounted for a mere 1.2 per cent of Malaysia’s exports in 2015 while the EU (ex-UK) contributed 8.9 per cent. RAM Ratings
on Malaysia’s macroeconomic performance will be monitored going forward.
De spi te the numerous possibilities, we believe that the UK’s membership in the European Economic Area is the most plausible and mutually beneficial post-Brexit outcome.
“This is because it partially mitigates some of the UK’s concerns about its original form of EU membership while retaining just about every benefit of free trade it currently enjoys.
“As this is a dynamic and ongoing event that has already thrown the UK’s domest ic political scene into chaos, RAM will maintain close monitoring of this move into uncharted territory (no country has opted out of the EU until now), to assess its impact on Malaysia’s economic and financial performance.”