Brexit will have limited impact on Thailand

Nevertheless, the impact on Thai trade should be limited as less than 3 per cent of Thai exports go to the UK annually, against nearly zero UK imports to the Kingdom. Also, the |UK was not a major destination for Thailand’s overseas investment. 

In the Brexit scenario, global economic risks would be heightened but impacts on the Thai economy would be gradually phased in over a two-year period, during which the UK would complete the disintegration process, economists said.

“There will be greater financial volatility – particularly in the foreign exchange and bond markets, which could influence the cost of funding, but I don’t expect an economic shock,” said Narit Sathapholdeja, an economist at TMB Bank.

A Financial Times poll updated on Friday showed 43 per cent of eligible voter in the UK supported remaining in the EU, while 48 per cent wanted to leave. Nine per cent were undecided.

The immediate reaction to the Brexit scenario would largely hit the baht during the Asian session on Friday, as the vote count will end at 10pm in the UK. 

Ahead of the vote, funds have flowed to traditional safe havens like the US dollar, the yen and the Swiss franc. In the past two weeks, the euro weakened to US$1.1131 (Bt39) before firming at $1.1257 on Friday on market speculation that the vote would be postponed following a British lawmaker’s murder. 

The cost of hedging against volatility in pound sterling and the euro over the next week will hit multi-year highs, but this may move sharply either way after the vote is over. 

The baht has appreciated by 1.45 per cent to end last week at 35.25 per US dollar. As the dollar and the yen may surge in the case of Britain voting to leave the EU, Siam Commercial Bank expects the baht to slightly weaken against those currencies. The depreciation should be limited given Thailand’s high current account surplus and reserves, it said.

Usara Wilaipich, senior economist at Standard Chartered Bank (Thai), believes that the Thai business sector should also be prepared for a reverse move: the baht could appreciate sharply if the “Remain” campaign wins and that would hurt exports badly.

“The currency volatility will be here for a short term until the markets can adjust themselves,” said Kobsak Pootrakool, vice minister at the Prime Minister’s Office.

Therdsak Thaveeteeratham, executive vice president of Asia Plus Securities, noted that Brexit could trigger panic selling of Thai shares on Friday. Expected to move in a range of 1,410-1,435 points ahead of the vote, the SET Index may fall below 1,400 in the Brexit scenario or reach 1,450 points if the “Leave” campaign wins. 

The focus is now on the short-term impact, amid recognition that exiting the EU would cast long-term challenges to the global economy. These include the risk that other countries from the 28-member EU bloc may consider “exit” referendums.

Kasikorn Research Centre anticipates a sharp depreciation in pound sterling and the euro against other currencies in the second half of this year. This will pressure EU demand for Thai exports and may lead to a cut in travel expenses. 

In the first four months of 2016, tourists from EU and UK generated Bt290 billion for Thailand’s economy, or 20 per cent of the total reaped from inbound tourists. 

According to the Commerce Ministry, the United Kingdom is Thailand’s third-largest export market among EU countries. In the past three years, the average export value from Thailand to the market was $3.87 billion, while the average shipment value to the EU market was $20 billion each year.

Commerce Minister Apiradi Tantraporn admitted that global trade could be affected by an |exit.

This would delay the global economic recovery, Narit of TMB said. Yet, he noted that the key risks now to the Thai business sector were the unsustainable recovery cycle, with only the US leading the way in the past two years, as well as the US presidential election. 

“Thai businesses should start thinking about this now, before borrowing or investing. To me, the political uncertainties are key risks and they are now underpriced,” Narit said.