The exit of the United Kingdom (UK) from the European Union (EU), also known as Brexit, has minimal direct effect on the Philippine economy due to strong macroeconomic fundamentals, according to the National Economic and Development Authority (NEDA).
“The direct effect of Brexit does not seem substantial, even as we expect that domestic financial markets will experience volatility and huge swings in capital flows in the short term due to uncertainty. Despite this knee-jerk reaction, the economy stands on solid footing given its strong macroeconomic fundamentals,” said Socioeconomic Planning Secretary Emmanuel F. Esguerra.
The UK economy accounts for 2.4 percent of world GDP in PPP terms in 2015, and direct Philippine exposure to the UK economy is minimal. Merchandise exports and imports between the UK and the Philippines is small, accounting for only 0.9 percent and 0.5 percent of the total in 2010-2015, respectively.
“However, the indirect effects via its impact on the EU bloc and the knock on effects on the rest of the global economy bears watching. Diversification of export markets and products, increasing competitiveness, and strengthening domestic demand would therefore be important,” the outgoing Cabinet official said.
In terms of external debt, borrowings from EU countries namely United Kingdom, France and Germany amounted to US$6.8 billion which made up only 8.8 percent of the country’s total external debt. The country’s debt stock remained largely denominated in US Dollar (63.0%) and Japanese Yen (12.4%).
“As such, the depreciation of the Euro and UK pound is not expected to have significant positive effects on debt service,” said Esguerra.
In terms of investments, net equity placements from the UK accounted for 4.9 percent, on average, from 2010-2015. But worth noting is the jump to 20.2 percent share in 2015.
Meanwhile, share of remittances from the UK averaged 5.3 percent from 2010-2015, and grew by 9.5 percent. Also, annual Overseas Filipino Workers’ (OFW) deployment to the UK accounted for only 0.26 percent of the total in 2010-2014. In 2014, OFW new hires to the UK consisted mostly of nurses, at 88 percent.
Also, tourist arrivals from the UK accounted for 2.7 percent in 2010-2015, and grew by 9.3 percent. As with remittances, tourist arrivals from the UK showed resilience in times of adverse events.