The UK general election resulted in a Hung Parliament for the first time since 2010. This means that no party could form a parliamentary majority, with the Conservative party being forced to find support from the DUP. This has led to fears of instability and volatility in the UK economy as well as other economies. Here are some of the ways this might affect Malaysian businesses.
Upsets Global Economy
One thing which economists have learned from the past few years is to expect the unexpected. Major political shocks, such as the Brexit referendum and the election of Donald trump, have caused the markets to go into shock in the short term.
Although the UK election has so far caused little disturbance in global markets, there is still plenty of time for the shockwave to reach the economies of other countries. Malaysia, as a major trading partner of Britain, could well see its economy destabilise as higher volatility is injected into the markets of the world, and its businesses could suffer from the ensuing financial uncertainty.
Malaysia and the UK
Having enjoyed strong growth in Q1 of this year, it seems as though the environment for Malaysia and Malaysian markets is so far healthy and prosperous. This is perhaps the reason it is one of the fastest growing economies amongst its counterparts.
It has a strong trade relationship with the UK, which both countries have been planning to further develop post Brexit. This would greatly benefit their respective economies, and Malaysian businesses would undoubtedly welcome the move. The election, however, could cause complications to this as it has upset the power balance in the UK, with the general public showing how divided they are over key issues like Brexit.
Investors Are Cautious
This has led to a certain level of anxiety amongst investors from both sides, and there is no telling how the situation may play out. The initial reaction to the election result was for the pound to tumble against power currencies like the euro and the dollar, although the relationship between the ringgit and the pound remained fairly stable.
Volatility in different currencies will only make investors far more cautious, as it could heighten the risk of investments. Malaysian business may therefore suffer from a lack of investment opportunities, which would hit start-ups particularly hard.
Uncertainty for the Future
The greatest threat to Malaysian businesses, especially those which rely on trading with the UK, will be the overall uncertainty which now surrounds the future economic outlook. If a softer Brexit is delivered as a result of the election, then the UK may rely far less on any new trade deals being struck with countries outside the EU.
A hard Brexit, however, would likely damage the UK economy and pound, and significantly reduce its ability to trade.
It is unlikely that the result of the UK general election will have any major impacts on Malaysian businesses in the short term. GBP/MYR remains fairly stable and the two countries look as though they are prepared to further relations after Brexit. It is the longer term uncertainty which will have the biggest impact on the economy and Malaysian business as a whole.