How Brexit could affect Singapore

WHAT IS BREXIT?

Brexit refers to the scenario where Britain leaves the European Union (EU), with a referendum to be held in the UK tomorrow.

The last time the UK went through a similar referendum was in 1975, when British voters backed the nation's continued membership of the European Economic Community (EEC).

The EEC was incorporated into the EU when it was formed in 1993.

WHAT IS CAUSING THE TENSION?

Those who are for Brexit believe the UK is held back by the EU, which they say imposes too many rules on businesses and charges billions of pounds a year in membership fees for little in return.

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They also hope for the UK to regain control of its borders and cut down the flow of foreigners into the country. This runs contrary to one of the union's aims: to open up borders between EU nations.

Those who object to Brexit feel that staying in the EU will make selling goods to other EU countries easier. And that the flow of immigrants into the country drives economic growth and helps pay for public services.

WHAT WOULD BE THE IMPACT OF BREXIT?

For the UK and the EU

Brexit would mean closing doors to trade with the other EU countries. Future trade agreements become more uncertain after European Commission president Jean-Claude Juncker said last month that British "deserters will not be welcomed with open arms" by European partners.

Trade with the other EU countries - 44 per cent of UK's exports go to the EU - will be affected.

The uncertainty may further reduce confidence in the sterling.

With businesses less likely to invest in the UK, the International Monetary Fund predicts a recession, which could mean possible layoffs.

London may also lose its standing as the financial centre for Europe as banks move their operations out of the UK.

For markets and businesses

Halfway across the globe, Asian exports could be hurt by Brexit as consumers in the UK will have lower spending power from a weaker sterling.

A grim economic outlook may also dampen consumer spending in the UK, said CIMB's private banking economist, Mr Song Seng Wun.

He said: "If consumers are more worried about the (economic) outlook, they may buy fewer Hyundai cars or hold off purchasing a Samsung Galaxy S7."

Resource-rich exporters like Malaysia and Indonesia may see their currencies depreciate as oil and gas exports become cheaper to cope with the decreased demand.

Businesses have to decide if they still want to invest in the UK in light of a depreciating sterling.

"If you want to proceed with business, you have to derive at an assumption of where the sterling stands," said Mr Song.

"If there's volatility, you can't decide. So you wait. That's when you have a ripple around the financial markets."

In Singapore and the region, which have been grappling with subpar economic growth, this inactivity among businesses could mean fewer jobs and lower wage increases.

But Mizuho's senior economist, Mr Vishnu Varathan, also sees opportunities for Singapore.

"It's not a zero-sum game, but sometimes in a shake-up, there are opportunities," he said.

Instead of importing from European countries, the UK could start importing more goods from Singapore, in what Mr Vishnu called a substitution effect.

Those who have looked to London as an important financial centre may start to look for alternatives, he said.

For individuals

The sterling will fall, which is good news for those intending to travel to the UK or are funding their children's education there.

A depreciating sterling also means opportunities for Singaporeans who may wish to buy properties in the UK.

Mr Song warned that in the long run, if the pound stays low for long enough, businesses may start raising the prices to keep up with the unfavourable exchange rate.