HSBC has upgraded its economic outlook for Asia ex-Japan, forecasting the region’s gross domestic product (GDP) to grow 5.1 per cent, compared with a lower estimate of 4.5 per cent before, said the bank’s executives in a virtual conference on Monday (May 22) on their Asian outlook for the second half of 2023.

However, it expects sustainable finance issuances in the region to decline this year relative to 2022, owing to anti-woke sentiments around environmental, social and governance (ESG) issues in the United States, tighter ESG regulations and market volatility,

Nonetheless, the bank is targetting to double its own sustainable financing volumes coming out of South-east Asia over the next three years.

Economic outlook upgrade

Despite weakness in global trade as a result of slowing demand in the United States and European markets, the resilience of domestic demand has helped to prop up growth in Asia, said Frederic Neumann, chief Asia economist and co-head of global research for Asia at HSBC.

The forecast upgrade is driven largely by China. HSBC also recently upgraded its economic forecast for China to 6.3 per cent for 2023, said Liu Jing, chief economist for Greater China.

While recent economic data out of China showed a mixed picture with a contraction in private investment but a 10 per cent year-on-year growth on consumption, Liu said that the bank sees China’s growth as a gradual process from its opening after three years fighting the Covid-19 pandemic.

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Service consumption has experienced a V-shape rebound, which is helping to improve the labour market for the service sector, and the next leg of recovery could be in goods consumption.

However, China’s recovery is not enough to offset weakness in the US and European markets. Neumann said these two key exports markets will likely continue to weaken in the second half of the year.

This will impact trade-dependent economies such as South Korea and Taiwan.

Resilient domestic demand in South-east Asia and South Asia is able to offset some of the region’s export weakness.

Neumann also said that stress in the global financial sector has not led to a spillover to domestic banking systems.

While there are signs that central banks are looking towards some interest rate cuts given that the market is reaching the end of the tightening cycle, Neumann said that rate cuts would not likely occur this year, but only in early next year.

“We think that very sticky inflation will prevent them from easing monetary policy aggressively in the coming months,” he said.

In addition to China, Neumann said that Vietnam, Malaysia, India, Indonesia and Thailand are the bank’s top picks for economic growth.

Slowdown in sustainable financing

Issuance volumes of green, social and sustainability bonds have declined year-on-year, noted Chan Wai-chin, head of climate change centre and ESG research at HSBC.

On a year-to-date basis, issuance volumes this year have come in at about US$15 billion for Asia ex-Japan, which is “very, very little” and is less than the amount issued at the same time last year, said Chan.

In addition to anti-ESG sentiments in the US, tighter regulation surrounding the integrity of green, social and sustainability-labelled bonds to avoid accusations of greenwashing, as well as market volatility owing to rising interest rates.

“So going forward, we expect (sustainable finance issuances) to continue sort of grow throughout the year, but possibly less than it was this time last year,” said Chan.

The decline in issuances is a trend continuing from 2022. A recently released report from the Climate Bonds Initiatives and HSBC found that sustainable debt issuances in South-east Asia had a 32 per cent contraction for the whole of 2022 to US$36 billion, compared to the previous year. 

However, Sunil Veetil, head of sustainability for Asia-Pacific at HSBC, told media at a separate briefing that the amount of issuances in 2022 for deals brokered by HSBC was better than in 2021, though it was below 2020 levels.