Analysis | Macau facing worst recession because this time China can’t help

From early 2014 to early 2015, Macau went from being one of the fastest growing economies in the world to one of the slowest. A crackdown on corruption orchestrated by President Xi Jinping dampened the appetite for gambling in the Macau SAR and exposed the city’s reliance on high-roller gamblers.
And yet, neither the 2015 recession, nor the 2008 financial crash nor the 2003 SARs epidemic before it measure up to the impact of Covid-19.
Right now, Macau faces possibly its toughest economic challenge since the handover. Economists say this is partly because of the already weak economic conditions in the SAR before the coronavirus outbreak, but also because, this time, the mainland cannot come to the SAR’s rescue.
Although a 35% fall in gross gaming revenue led to a two-digit contraction back in 2015, some economists believe it is worse this time as the Macau SAR entered 2020 from a 3.4% contraction in 2019.
“I think that overall, it’s worse [than previous recessions]. I think this is the most vigorous economic challenge since the handover. I think it is happening because there are several negative factors that are occurring at the same time,” economist José Luís de Sales Marques told the Times.

Second month under pressure
Macau is into its second month of experiencing the dramatic effects of the epidemic outbreak on its top visitor source market – mainland China.
There are some indications that the health crisis is being controlled. Today is the 31st day of having no recorded cases of Covid-19 in the SAR. But outside this small city, the virus’ spread is still ongoing apace across Asia, and notably in South Korea and Japan.
For Sales Marques, the SAR will need to wait for the health crisis to be brought under control in mainland China and Hong Kong before the city’s economy returns to life.
“Economic recovery takes longer because we have the Chinese economy facing several issues,” said the economist. “China has [quite severe] problems itself in terms of its economic performance and recovery and how long it will take. We depend so much on China as our main market.”
In the meantime, the government will play a major role to stimulate the economy through measures such as the handing out of MOP3,000 coupon vouchers to local residents to boost the community’s purchasing power.
The economist suggested that the government needs to find more ways to acquire supplies from the private sector, either in goods or services, in a bid to encourage consumer confidence.
“We cannot expect the casino sector to invest this year. There’s no way. So, there is a lot of work from the public sector as well as the private sector. Overall, it’s important for the government and the private sector to restore consumer confidence,” said Sales Marques.
Echoing the sentiments, economist Albano Martins said the city’s recovery remains unclear.
Martins stressed that the relief measures announced by the government for local small and medium-sized enterprises can only serve as short-term relief.
He believes that the situation will worsen for local companies if the crisis extends into the next two months. He also said that nobody can be certain how long the crisis will last.
“The majority of these companies are not prepared as there is not [enough] cashflow to survive for the next two or three months without [government] support,” he stressed.
“This time it is really tough because we can’t see whether in a short while we will have people visiting again from China,” added the economist. “We will have serious trouble if this situation persists. We may decrease this year as much as the decrease back in 2015.”

Recovery as early as mid-2020
Following an 87.8% fall in gross gaming revenue in February, at least some gaming analysts expect 2020 to post a double-digit revenue drop. CitiGroup, for example, has decided to lower its 2020 growth forecast from -12% year-on-year to -28% year-on-year.
But many analysts also expect a recovery to begin to take effect from as early as the second quarter.
Credit Suisse said this week that China would begin reissuing visas to Macau with a phased approach starting from “late April/May”, while others believe restrictions to the Individual Visit Scheme will be lifted at once. Visitation from the mainland could return to normal levels by the fourth quarter, said Credit Suisse.
JP Morgan Securities (Asia Pacific) expects the year-on-year decline in casino revenues to narrow to just 8% in the third quarter of 2020 and 5% in the fourth quarter, implying a general recovery around the year’s mid-point.
According to a note seen by GGRAsia, JP Morgan Securities (Asia Pacific) has described February’s staggering plunge as “not meaningful” given the disruption to the inbound tourism market.
Gross gaming revenue fell 3.4% last year as Macau casinos struggled to adjust to a perfect storm of economic headwinds, including the fallout from the China-U.S. trade war, relentless protests in neighboring Hong Kong and a crackdown on online gambling in both Macau and the mainland. Daniel Beitler, Lynzy Valles