Will Brexit Affect Singapore’s Economy?
The result of the UK referendum to leave the European Union has sent shock waves around the globe. The political and economic impact is being compared by some to the dismantling of the Berlin Wall, or the demise of the Soviet Union.
But will the reverberations of Brexit be felt as far away as Singapore? While the answer to this question will not be clear for some time, it is safe to say that business organisations in Singapore will have to take the implications of Brexit into account while dealing with the UK.
It is a fact that when Singapore companies want to access the EU market, they use London as a convenient entry point. But this may change now. It may make more business sense to use a location within the EU rather than outside it.
Future of the British Pound – The day of the referendum result, Sterling fell to a 31-year low.
The Sterling exchange rate against the Singapore dollar fell from $2 to $1.80. This precipitous fall could seriously damage Singapore’s trade with Britain. UK companies will already be paying more for imported goods, and this could result in a fall in demand and trade volumes.
EUSFTA – According to the Singapore Ministry of Trade and Industry, the European Union-Singapore Free Trade Agreement (EUSFTA) has so far been six years in the making, with initial negotiations starting as far back as 2009.
Now the result of the Brexit vote may have implications for the free trade agreement as far as the UK is concerned. In 2014, Singapore’s bilateral trade in goods with the EU was about $96 billion, and the EU was Singapore’s third largest global trading partner.
A large portion of Singapore’s EU trade is with the UK. Once London starts unravelling itself from the EU, Singapore’s businesses can expect to be confronted with the prospect of entering into fresh negotiations as they establish ties with organisations located within one of the 27 remaining EU countries.
What does the Singapore business fraternity say? – Singapore’s companies are aware that Brexit could change the EU market forever. If the ‘leave’ campaign gains traction in other countries, the situation could become even worse. Political instability can result in a slowdown in growth and a host of other issues.
The Singapore Business Federation (SBF) is the apex business chamber that represents 22,500 companies across a range of industries. It also serves as an interface between local and foreign business chambers and the government.
Soon after the British government announced that the referendum result was in favour of leaving the EU, the SBF made a formal statement in which it said, “The decision to leave the European Union adds more risk to Europe’s stability and to global markets at a time when the world economy needs more stability.
“The possibility of a weaker EU, given its importance as a trading and investment partner to Singapore, will have significant impact on our economy.”
The SBF has expressed concern that “as new configurations are negotiated and put together” Singapore businesses in the UK will face increasing uncertainties.
Stock market sees huge losses – Global stocks lost a record US$2 trillion in the immediate aftermath of Brexit. At the very least, for the UK, a sustained recovery would not seem likely any time soon.
Jim Rogers, chairman of Rogers Holdings and co-founder of the Quantum Fund with George Soros in the 1970s, holds the view that stock markets and currencies will face long-term consequences. He says, “This is going to be worse than any bear market you’ve seen in your lifetime…
“The EU as we know it will not exist. The euro as we know it will not exist… These are going to be perilous times.”
Assuming Brexit goes ahead, the fallout for Singapore would not be limited to simply trade between the city-state and the EU. The repercussions would be more widespread and diffused.
The performance of the European market has been lacklustre for some time now. China’s economy continues to send out mixed signals, and growth rates are unlikely to ever return to the levels seen in the past.
Although the US has seen a fall in unemployment and economic recovery, these may have been due to the boom in shale gas – which seems to have more-or-less ended. Moreover, exports are not strong, and wages have been depressed for decades.
And in addition, because of weak commodity prices, there has been a contraction of orders in the energy sector. Many Singapore businesses are dependent on the oil industry, and the continued slackness in energy prices has been a major negative.
It seems inevitable that Brexit will compound the problems facing world trade, and Singapore’s export–driven economy is sure to feel its ill-effects.