The nation’s tenuous recovery momentum will be rocked by new uncertainties after Britain voted to leave the EU, the Taiwan Institute of Economic Research (TIER, 台經院) said yesterday.
“Brexit marks the beginning of new uncertainties for global markets, as well as Taiwan,” TIER Economic Forecasting Center director Gordon Sun (孫明德) said, referring to the outcome of the British referendum as the “next black swan” after the US Federal Reserve began its interest rate hike cycle.
Heightened uncertainties will inevitably turn businesses more skittish, leading to delayed orders for equipment and materials, straining export recovery and prospects of maintaining 1 percent GDP growth this year, Sun said.
The impacts of the referendum are more severe than the export contribution of the British and European markets, as a considerable amount of trade is conducted indirectly through China, Sun said.
Meanwhile, Brexit might stir similar sentiments in other EU members, such as the Netherlands and Denmark, leading to further turbulence and volatility, he said.
Most notably, with European sentiments now leaning toward protectionism and the UK anticipating export advantages from a weakened pound, Taiwan’s economic growth plans that focus on innovation and industrial transformation might require reassessment, Sun said.
Taiwan is expected to see a rise in capital outflows similar to the UK as investments flock to gold, the yen and other hedging options in the fallout of the referendum, he said.
The central bank yesterday said it is poised to curb an overshoot in the New Taiwan dollar in the wake of UK’s exit from the EU.
“If Brexit causes global financial turmoil and thereby causes excessive volatility and disorder in the NT dollar, the central bank will step in to keep the foreign exchange market in check,” the central bank said in a statement.
The central bank is also to provide liquidity for economic activities and plans to closely monitor Brexit’s impact, the statement said.
However, it said Brexit would have a limited effect on Taiwan’s trade and financial markets in the short term.
Exports to the UK accounted for 1.35 percent of the nation’s overall exports last year, making Britain the nation’s 16th-biggest trade partner, the central bank said.
However, the central bank warned that the impact on the nation’s exports is likely to grow over time due to economic weakness in other EU members.
In addition, the pound tumbling against the world’s other major currencies is to have a limited effect on the nation’s foreign-exchange market, given that pound to US dollar trading only contributes 3.4 percent to the nation’s total foreign-exchange trading.
The British currency constitutes only 0.6 percent of local lenders’ foreign currency deposits, the central bank said.
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