Friday 29 Mar 2024
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SINGAPORE (June 27): Singapore will be the hardest hit from the Brexit fallout, given its position as an international financial centre and vulnerability to turmoil in global financial markets.

Nomura estimates that Singapore’s economy could fall by 0.7 percentage points as a result of Brexit, and that could represent a sufficiently large shock warranting further policy easing from the Monetary Authority of Singapore.

As such, the research house now believes there is a 60% chance the central bank will re-centre the SGD nominal effective exchange rate (NEER) policy band lower on or before its October policy announcement, up from just 30% before Brexit.

More fiscal spending is also expected beginning next year. Singapore is expecting a fiscal surplus of 0.8% of GDP this year, which should give it space to fund a fiscal deficit in 2017, Nomura points out. 

The government should also approve the expedition of public sector projects and raise support to the labour market in the months ahead.

Thai troubles

Thailand is expected to be the next worst hit, as falling EU demand for Thai goods will exacerbate the country’s already challenged manufacturing and export sector.

Meanwhile, falling domestic demand as a result of high household debt levels and poor wage inflation will continue to weigh on GDP growth, which is now expected to drop by 0.5 percentage points this year.

An upcoming Aug 7 constitutional referendum will also raise political uncertainty and potentially crimp spending.

All that could spur the Bank of Thailand to cut rates by a total of 50 bps this year and the government to authorise further fiscal spending such as extending cash handouts to farmers and tax breaks to urban consumers to support growth. 

Malaysian malady

Brexit will likely shave 0.4 percentage points off Malaysia’s GDP, tipping 2016 growth below the government’s 4%-4.5% forecast. Consequently, a 25 bps cut in the policy rate by Bank Negara Malaysia (BNM) may be on the cards in July, Nomura reckons.

“While BNM has consistently viewed the current policy stance as being accommodative and supportive, we believe BNM could quickly cut its policy rate should such downside risks materialise,” Nomura economists write in a June 24 report.

Another reason central bank action is likely is limited room for fiscal maneuvering by the Malaysian government given low oil prices and a commitment to meet its 2016 fiscal deficit target of 3.1% of GDP.

As such, Nomura is expecting more pressure on state-owned enterprises to expand and further cuts to employee contributions to the Employees Provident Fund to help support growth.

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