Singapore - The effects of "Brexit" will be felt in Asia and last for a while, Nomura's chief economist for Asia ex-Japan Rob Subbaraman said on Tuesday.
He and other analysts from the bank, speaking at a media conference call, were discussing their report, "Brexit: Expect waves of contagion on Asia", which was published last Friday, a day after the United Kingdom voted to leave the European Union (EU).
They said that while the economy of the UK was small, the impact of Brexit would be far-reaching and long lasting for two reasons:
One is that they are expecting a "non-trivial" spillover to the euro area economy and financial markets, which will then affect Asia; the other reason is that Brexit could further inflame anti-EU sentiment in other EU member states, heightening fears that more countries might choose to break away.
The report said: "While UK's share of global GDP (gross domestic product) is less than 4 per cent, the rest of EU's share is 18 per cent, so once the second-round effects on Europe are taken into account, the global impact is no longer trivial."
The analysts have cut their post-Brexit real GDP growth forecasts for this year for all Asian countries, excluding Japan and Australia. Taken together, the forecast of the countries' aggregate GDP growth fell to 5.6 per cent, from 5.9 per cent before the June 23 referendum.
They estimated that Singapore would be among the most vulnerable of the group, with economic growth likely to fall by 0.7 percentage points, second only to Hong Kong at 1.0 per cent.
Their large downgrades for the GDP growth rates of these two cities are based on their very open economies, status as financial hubs and their managed exchange rates.
The report, offering a reason for Singapore being hit harder by Brexit than other less-open ASEAN economies, said: "Not only is Singapore's economy already facing growth challenges on multiple fronts, it is also an international financial centre, and therefore likely to be significantly more vulnerable to associated financial market turmoil."
The analysts say the Singapore government will likely reach for easing policies in response to Brexit.
Craig Chan, head of Asia FX (foreign exchange) strategy at Nomura, believes Singapore is likely to ease its FX policy by re-centring the NEER (Nominal Effective Exchange Rate) policy band lower in the October policy announcement or before that. The analysts added that the government would likely have to deviate from its usual post-election fiscal conservatism and spend more, though, in their view, this is more likely to happen in fiscal year 2017.