Brexit to have little impact on the Philippine market

Local traders shrugged off the United Kingdom’s vote to exit the European Union (EU), saying it would not have any significant impact on the country as long as the vote doesn’t affect the United States.

Philippines Chamber of Commerce and Industry (PCCI) Chairman Sergio Ortiz-Luis said, however, it is possible the vote could affect other European Union member-states that trade with the Philippines.

The UK vote could also trigger significant risk aversion in global financial markets, spilling over to the international economy, according to global investment Standard Chartered.

The Great Britain pound and the US dollar would likely take the largest hit in the weeks following the UK vote to leave, it added.

Luz Lorenzo, an economist at ATR Securities, said Britain’s exit (Brexit) from the EU will have a weak impact on the country’s economy due to weak Philippine ties with UK in trade, investments, and remittances.

“The (trade) links with the UK are not very strong so the impact to the Philippines will be quite weak. What we will be seeing is after the knee-jerk reaction, people will realize that the Philippines still is driven by domestic demand and so there may some be changes in perception,” she said.

Lorenzo said the Brexit is feared to have a “domino effect” on the EU, and other rich EU countries may also start leaving.
The Bangko Sentral ng Pilipinas (BSP) said more volatility can be expected in domestic markets in the near term but it is ready to provide liquidity as needed.

“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 Tetangco Jr. said.

“Medium-term, we will look at developments, particularly how the rest of the European Union will react to Brexit,” he said.
BSP Deputy Governor Diwa Guinigundo said the Philippines can withstand the possible Brexit impact.

Guinigundo said the country has strong macroeconomic fundamentals and sufficient foreign-exchange reserves if there will be any negative effect in the Philippine market after the Brexit.

He added that these should be considered by investors if they have thoughts of leaving the domestic market.

“From our perspective, while Great Britain is an important trading and investment partner, considering the magnitude, the power of economic relationship with Great Britain, I think we have sufficient buffers to be able to absorb any negative consequence of Brexit,” he added.

Guinigundo also mentioned that the country continues to have surplus on balance of payments and has “generally good” current accounts.

“On that basis we should be able to accommodate that kind of an outcome in the Great Britain,” he said.
ING Bank Manila senior economist Joey Cuyegkeng said the immediate impact of the Brexit is on the financial market, and the Philippines will not be immune from this.

But Cuyegkeng said financial market-related weakness could be moderated by major central banks and major governments. He traced Philippines’s exposure to the UK to, among other things, the overseas Filipino workers (OFWs) who, as of end-December 2015, account for 5.6 percent of total remittance inflows.

“A slowdown in UK would have some impact but we expect such to be marginal,” he said.

However, the economist said a huge slowdown of growth in the UK and the eurozone as a result of the Brexit would be a negative for the Philippines, as Europe accounts for 15.5 percent of total OFW remittances, 12.6 percent of the country’s exports and 11.4 percent of imports.

In general, Cuyegkeng said policy makers around the world are likely to implement measures to limit the impact of the Brexit.
”The likelihood of extending or enhancing monetary accommodation has increased. Fiscal stimuli are also likely, especially for major economies that have significant fiscal leeway,” he said.

The economist said the “next impact would be felt as the UK negotiates with the eurozone and the European Union on the disengagement that would tackle trade, investments and others.”

Amid the expected negative outcome of this development, Cuyegkeng said “Philippine economic fundamentals are strong” and this is expected to cushion any hit from the Brexit.

”We believe that the economy can withstand such external developments,” he said, adding that “higher fiscal deficit spending focused on higher infrastructure spending and greater disposable incomes would likely keep Philippine economic growth in the area of 6 percent to 7 percent.”