Singapore - There are many uncertainties as a result of Britain's decision to withdraw from the European Union (EU), and these will weigh on the UK, Europe and the global economy for a few years and are likely to dampen growth.
This was Deputy Prime Minister Tharman Shanmugaratnam's take on "Brexit", when asked by two members of parliament on Monday about the possible impact it will have on Singapore's economy.
"We can expect repeated bouts of volatility in financial markets as Brexit is debated and negotiated. But what is of greater concern are the economic and political uncertainties resulting from Brexit," he told the House.
Mr Tharman, who is also Coordinating Minister for Economic and Social Policies, noted that there was "no precedent" for Brexit and it was tough to predict how and when events will unfold.
He said that until the future trade and investment relationships between the UK and EU were formally settled, the uncertainties would likely reduce investment and economic growth in the UK and Europe. This would lead to another headwind" in a "generally subdued" global economic outlook for the next few years.
What transpires over the longer term, however, is "even less predictable and a deeper concern", said Mr Tharman as he cited some possible scenarios that could take place.
The more optimistic of them would see the UK and EU arrive at a new and mutually beneficial arrangement for trade, investment and immigration.
He said: "If, as a result, the UK retains substantial access to the EU single market, we should not underestimate its ability to regain economic competitiveness and strength, and to remain a valuable economic partner for us in Singapore over the long term."
On the pessimistic side, however, the main unpredictability would be in the political dynamics, both within the UK and in Europe.
"If the UK is unable to hold itself together as a union, or if nationalism gathers pace among the EU's member countries, there will very likely be a permanent weakening of their economies," said Mr Tharman.
"More divisive politics in the UK and EU would also weaken the resolve to undertake needed economic and financial reforms for the long term," he added.
As far as Singapore is concerned, Mr Tharman explained that, for now, the Ministry of Trade and Industry does not expect Brexit to result in a significant reduction in growth over the short term or the next few years.
However, if a European slowdown coincides with other factors, such as a sharper than expected slowdown in China or the US, there would be a "more major" impact on the Singapore economy.
The short-term impact of Brexit is mainly on the financial markets, more than on economies, said Mr Tharman. The immediate impact of Brexit on currencies and stock markets has also not been a major concern for Singapore.
"It is premature to say what the longer term impact of Brexit will be, positive or negative. We must watch the developments carefully, and be prepared to adjust our strategies so that we stay competitive as an economy and can retain good jobs in Singapore," he said.
On whether Brexit would impact the investments of state investment firm Temasek Holdings and sovereign wealth fund GIC, Mr Tharman pointed out that it was not possible for the two organisations, like other major global investors, to be fully insulated from volatility in the financial markets.
"Both GIC and Temasek make investment decisions for the long term, and look beyond the short-term market booms and busts. Their focus with regard to Brexit, for example, is to assess how it could fundamentally alter the long-term prospects for the EU and the UK," he said.
This article was first published on July 12, 2016.
Get The Business Times for more stories.