Dispelling the claims that Brexit was a move for trade protectionism, Fitch said the United Kingdom as a country outside European Union (EU) might be able to make quicker progress on trade liberalization with Asian countries than as a member of the EU.
The Brexit campaign was branded by certain quarters as a growing discontent on globalization and was movement on anti-trade, anti-immigration and anti-establishment.
“It is possible that the UK’s exit from the European Union could be seen as a broad response to free markets, across trade, capital and labor. If so, this development could raise questions around higher barriers to trade and a potential shift to greater market protectionism,” the HSBC said last week.
However, Fitch sees the direct impact Brexit has on UK’s trade with Asian economies is likely to be limited.
“The UK is the world’s fifth-largest economy, and Fitch expects a slowdown in short-term GDP growth as a result of the referendum. But exports to the UK equate to less than 1 percent of GDP and account for less than 3.5 percent of total exports for every Asian country,” Fitch’s Colquhoun said.
However, APAC member, Sri Lanka remains an outlier as 10 percent of its exports reaches the UK and the cheaper GBP could lower the rupee equivalent of such exports.
Meanwhile, the rising Japanese Yen post-Brexit due to immediate flight of capital in to safer currencies could also pose risks to the country’s export sector and will pose challenges for Japan in its fight against deflation.
However, Fitch is of the belief that the Brexit could lead to a broad slowdown in EU markets over a prolonged period, which will have significant indirect trade effects on Asia as EU accounts for much larger share of Asian exports than UK alone. Smaller EU economies are more vulnerable than larger economies such as Germany and France which account for bulk Asian exports.