After panic, vote's impact on Thailand should remain limited

Amid global turbulence over Britain's decision to leave the EU, local business leaders say the effect on Thailand should be limited in the long term, but close monitoring will be essential as Prime Minister David Cameron's exit becomes another fear factor.

In the short term, panic-selling of global stocks and the deep plunge of the British pound against major currencies have dragged down Thailand's bourse.

Isara Vongkusolkit, chairman of the Thai Chamber of Commerce, said Thailand's trade may suffer from Brexit, triggered by a spate of concerns such as foreign exchange fluctuations.

"Trade with Britain could see a temporary disruption, as all businesses and traders have concerns about the consequences," Mr Isara said.

Over the long term, he said most countries are waiting to see how the UK comes up with new strategies to handle its exit and if the EU introduces measures to curb the negative impact of the British departure.

Mr Isara said close monitoring is needed over the impact of the Brexit on international trade agreements and future negotiations.

Chen Namchaisiri, chairman of the Federation of Thai Industries, agreed the effect on Thailand will be relatively low. The financial markets are naturally sensitive to psychological factors and will be more affected than real sectors such as industry or trade, he said.

However, the process of leaving the EU will take a few years to complete, said Mr Chen. Certain procedures should help calm investors, balancing out the markets, he said.

The Thai industrial sector is watching to see if another EU member plans to leave, which could affect the Thai economy, said Mr Chen.

"We don't see any direct impact on the Thai economy following the Brexit as trade and investment value between Thailand and Britain remains small," he said. Some Thai investors that import machines from Britain could get a good price in the short term thanks to the weaker pound, said Mr Chen.

Trade between Thailand and England accounts for only 2% of Thai total trade value. Trade between Thailand and EU accounts for 10%.

Stanley Kang, chairman of the Joint Foreign Chambers of Commerce in Thailand, said it is too early to predict the long-term effect of the Brexit as the British prime minister also resigned.

He said we will have to wait to see the condition of the relationship between the UK and EU after new leadership is elected.

Mr Kang said currency fluctuation will persist in the short term, but it won't affect trading between Thailand and the UK or EU.

A conflict has already arisen in the region, making the European market unstable, he said.

"Most EU and UK companies that invest in Thailand are multinational companies that do so during periods of uncertainty at home. This could be a chance for Thailand to attract more investment if it can sustain political stability," Mr Kang said.

He said since the EU won't negotiate with Thailand on a free trade agreement, the UK might consider negotiating with Thailand on a bilateral pact.

Deputy Prime Minister Somkid Jatusriptak said the government was prepared for a Brexit.

"The government held joint meetings over a couple of weeks with related economic agencies including the Finance Ministry, the Bank of Thailand and the Stock Exchange of Thailand to discuss the impact," he said.

Mr Somkid said the financial markets could stay volatile in the short term, but the central bank has prepared measures and will cooperate with central banks of other countries to handle the impact.

Capital markets might need some time to adjust, but trade is unlikely to be affected as Thailand's trade value with Britain is light, he said. Last year Thailand's exports to the 28 EU countries totalled just under US$22 billion, down 6% from 2014, while shipments to Britain were worth about $4 billion.

Stephen Roper, a professor at Warwick Business School, said small businesses should prepare for a period of volatility as markets react. Gains in terms of reduced regulation and EU membership costs may follow, but are probably some years off.

"Over the next few weeks a weakening of the pound sterling will help exporters, but will make euro imports more expensive, raising all small firms' input costs," he said. "Interest rates too may need to rise, raising business borrowing costs. Longer term, European firms may also switch orders away from the UK to insulate themselves from any changes in trading relations between Britain and the EU."

"The gains for small firms from the Brexit are probably two to five years away. There is potential for reduced regulation and new trade deals, but the timing and effects of both remain uncertain. Outside the EU the UK will also be free of EU competition and state aid rules allowing the UK government to provide more direct support to small business."

About the author

Writer: Post Reporters
Position: Reporters