DigitalCFO Asia Finance Predictions 2023

7 mins read

DigitalCFO Asia | 19 December 2022

What will be in the finance spotlight for 2023?

DigitalCFO Asia gathers predictions and trends for companies moving forward in 2023.

2023 APAC Predictions imply a more hotly contested economic market brought on by a more turbulent geopolitical environment. Considerations of the geopolitical climate, record high inflation, rising interest rates, and critical analysis on emerging technology continue into the new year as APAC financial industry sets to maintain the economic situation. South-east Asia’s economic growth rate may slow in 2023 as global headwinds worsen, but the area is still expected to be a bright light in a world that is on the verge of going into recession, according to experts.

The financial predictions for 2023 in the Asia Pacific are as follows:

1. Predicted Lower GDP Growth for the APAC region

While many high-investment APAC regions have shown sturdy resilience against recent commodity-price shocks and tighter global financing conditions, it is expected that 2023 will weaken domestic and external demand for many APAC sovereigns. While predictions have APAC growth rates generally higher than other regions, the aftermath of the pandemic outbreak continues to be felt, though at a rapidly fading pace. Investments and consumer consumptions within the APAC region are likely to be affected as financing costs continue to rise due to the impact of tighter monetary policies and rising inflation set on by less supportive fiscal policy settings.

Furthermore, economic recessions in the West following the Ukrainian War and a slowly recovering Chinese market will reduce demand for Asian imports. It is expected that pre-pandemic fiscal deficit levels are still long in the future for many APAC Sovereigns as structural consolidation measures are put into place and enacted across the region. However, the slow fiscal consolidation forecasts will only result in a small number of APAC sovereigns experiencing substantial reductions in public debt over the course of the next few years. That being said, the outlook distribution for the APAC region is fairly balanced throughout sovereigns, with only two negative outlooks from the Philippines and Maldives and one net positive in Vietnam.

According to Mike Polaha, Senior Vice President, Finance Solutions and Technology at BlackLine, economic growth in Asia-Pacific is expected to slow down amid tightening global conditions, inflationary pressures and recession fears. In Singapore, the Monetary Authority of Singapore predicts that economic growth will slow ‘below trend’ in 2023, weighed down by key external-facing sectors. This possibility’s uncertainty elevates the need for Finance & Accounting (F&A) to focus on cash flow and working capital management priorities.

CFOs can be expected to ask their organizations in 2023 to optimize and maximize cash across the enterprise. In turn, this demand requires F&A professionals to obtain clearer visibility into where cash is originating and exiting the business. A recent global survey of almost 1,500 Finance & Accounting professionals by BlackLine suggests a lack of significant confidence in cash flow visibility. In Singapore, less than 4% of C-suite and F&A professionals surveyed are entirely confident in their visibility over cash.

This is despite nearly two-thirds (61%) of survey respondents in Singapore saying that understanding cash flow in real-time has become more important for their company in 2023. In fact, one of the biggest challenges they face is being able to provide accurate data quickly enough to help the organization respond to market changes.

The survey also found that more than half (57%) are concerned that customers will have less income to spend, which will affect sales and revenue; while about half (51%) are worried that their organizations will face higher costs.

To mitigate these concerns, F&A professionals will need to seek a better understanding of accounts receivable timing to make quicker and more productive interventions, and invest in automated processes and software assisting these strategic working capital aims. Nearly half of Singapore respondents (49%) in the BlackLine survey plan to implement or scale working capital automation solutions in 2023.

2. Regional Comprehensive Economic Partnership is expected to boost rising APAC cross-border commerce

QR code-based digital currency pilots across the Southeast and East Asian region will continue to maintain strong resilience in the APAC Payment Market following into the new year. Supported by a more practical innovation focus, these cross-border banking systems use newly developed modern technology such as permissioned blockchains and APIs for interoperability between national APAC sovereign platforms, boosting the potentiality for regional commercial growth in light of rising inflation and weather-related costs coming in the new year. 

The emphasis on compatibility and interoperability between the Southeast Asian multi-central digital currency pilots, China’s Cross-Border Interbank Payment System and India’s Unified Payments System will only continue to emboss the financial portfolio of the RCEP with use in processing regional cross-border transactions that the 50-year old SWIFT system is ill-equipped in meeting the operational needs of, leading to expectations that banks and established payment firms will increase investments in continued development of new technologies that can seamlessly integrate with APAC payment networks. However, while the technology is expected to serve as a boon for APAC in the new year, the highly competitive consumer payments market is projected to draw less investments in 2023 as it did in 2022. Counter to that, B2B payments are expected to go on an upward incline with continued modernization and adaptation within the APAC region. 

3. APAC Banks are expected to remain steady into 2023

After interest rates rise in most APAC economies in 2022, with the exception of China and Japan, it will be crucial to keep an eye on how asset quality and net interest margins interact. Even as support measures wind down, it is anticipated that loan deterioration will remain mostly low throughout APAC. Loan provisioning appears to be good in the majority of markets, and relief and forbearance measures may be extended in some areas of the region, namely in EMs. Indian state banks often have the smallest buffers, but their ratings gain from the notion that the government will help them, which is a characteristic shared by APAC EM bank ratings. 

Even with normalized credit costs and loan growth being negatively impacted by the generally unfavorable external environment, we expect a better outlook in Singapore as profitability measures increase further to levels above pre-pandemic levels. However, it’s unlikely that this will be enough to raise Singaporean banks’ ratings.Because of the presumptions around support, sovereign ratings will continue to be significant for many bank Issuer Default Ratings in APAC. With the exception of the Philippines (negative), Sri Lanka (defaulted), and Vietnam, outlooks on sovereign ratings are largely unchanged (Positive).

4. APAC Firms will use emerging technologies to reduce dependency on global solutions

By investing in possibilities that lessen their reliance on global solutions, APAC companies will narrow their regional emphasis to speed growth. 43% of business and technology leaders in APAC who place a high priority on platforms employ sector-specific cloud solutions. 45% of the world’s industrial sector is currently made up of businesses engaged in manufacturing, construction, utilities, and other industrial activities. Through the use of digital industrial platforms, these businesses will drive industry-wide cloud adoption and provide enduring value to customers. While most large businesses in APAC have used RPA over the past five years, many still find it difficult to pinpoint high-value operations that can be automated. 

One in five businesses in the region will embrace process intelligence solutions in 2023 to revive stagnantly or failing RPA initiatives since APAC now holds 11% of the global market for process intelligence. Container-based, microservices-oriented architectures with distributed capabilities will be prioritized by APAC companies. These architectures can be advantageous for a variety of technology domains, including artificial intelligence (AI) and machine learning (ML), data management, the Internet of Things (IoT), 5G, edge computing, and blockchain.

5. APAC firms will struggle to meet rising customer expectations

Businesses will find it challenging to keep up with growing customer expectations regarding omnichannel experiences and environmental, social, and governance (ESG) obligations despite embracing technology-led solutions to better the lives of customers and citizens. Continued value-consumer demands for firms to publicly commit to Environmental, Social and Governance efforts in an attempt to align with current value trends. However, the pressure to maintain market position will likely cause some to overstate or misrepresent their claims to ESG efforts. This will result in penalties of upwards of US$10 million or more for those found giving misleading ESG claims. 

Increasing regulations in such cases come as APAC regulators follow in the footsteps of their US and Europe counterparts following the social impact of greenwashing. At least fifty APAC firms are under investigation for performative ESG efforts, with five expecting severe fines for their offenses. Most of those firms are financial services firms, with many expecting to lose brand equity or revenue following any reputational loss due to the claims against them. Such can be seen when companies celebrating Women’s Day had their gender pay gaps revealed on social media, leading to ensuing litigation, regulatory fines and brand damage.

6. CFOs are taking charge too, not just CEOs

According to Mike Polaha, Senior Vice President, Finance Solutions and Technology at BlackLine, if CEOs are typically seen as those who bring the company’s vision to life, map out its growth, drive profitability and for publicly listed firms, increase share prices, CFOs are the bridge to making this vision work considering the ebbs and flows in the market and the organization’s capabilities. They are responsible for financial planning and stability, all of which contribute to business health and employee well-being.

While many respondents saw that CEOs and CFOs have equal responsibility to help navigate a business through the winds of change, CFOs have a greater tendency to believe this burden is theirs alone to bear. BlackLine’s survey saw that 68% of CFOs in Singapore said they were responsible for ensuring their company’s well-being during an economic downturn, compared to 30% who said that this was the responsibility of their CEO. CFOs in Singapore also saw that it was their responsibility to help steer the business successfully through a geo-political conflict (54%), the war for talent (54%) and inflation (65%) compared to CEOs.

An unpredictable and harsh economic climate could put tremendous pressure on CFOs to co-lead the business. But their knowledge of all things finance and marketplace movements will be critical in helping businesses go through what might possibly be another challenging economic year.

As APAC continues into the new year, financial awareness of the tribulations faced by regional firms is required to adequately navigate an ever-evolving situation following post-pandemic events and the continuation of emerging technologies taking center stage within the markets. It is anticipated that more businesses will invest in automated intercompany financial management solutions in the upcoming year. Due diligence for M&A transactions, regulatory compliance, and entity data management are all made possible by this.