The Macau SAR is expected to undergo a “much deeper economic contraction” this year, with the city’s economy predicted to plunge by 24%, according to Fitch Ratings Inc.
This drop will be the city’s second straight year of economic decline.
Although the international rating agency has affirmed Macau’s credit rating (long-term foreign and local currency issuer default ratings) at “AA,” it maintains a negative outlook on the city’s economy.
In the Policy Address of the Chief Executive on Monday, Ho Iat Seng mentioned that the pandemic outbreak had exposed the vulnerability and huge risk inherent in the economy’s overreliance on gaming tourism.
The agency argued the same sentiment, noting that “Macau’s concentration on gaming tourism exposes its economy to substantial disruptions from lockdown measures imposed to contain the coronavirus pandemic.”
“This is despite a limited number of locally confirmed cases and a significant counter-cyclical policy response,” the group added.
Fitch then points out that moderate economic diversification and a shift toward a more stable growth model could benefit Macau’s economy over time.
However, local economists expressed their views that diversification is not possible in the region.
“Everybody wants a diversified economy but no one can [achieve this], because there are just some factors that do not exist,” said economist Albano Martins. “In Macau, we have very few people […] and some are not even the best ones for some of the industries. We need to get trained and have a lot of experience so we can have other successful industries.”
For Martins, in the meantime Macau needs to embrace itself as a region that is heavily reliant on gaming tourism and on the mainland market.
On Monday, the Chief Executive said that the local government will, in due course, request that the Central Government resume issuing tourist visas for residents of mainland China to travel to Macau, as well as an extended roll-out of the Individual Visit Scheme to more mainland cities.
For economist José Luís de Sales Marques, the expansion in tourism arrivals once the borders reopen will be a significant factor to alleviate the city’s economic hardship. He said that it will be this external force that will drive the economic recovery.
“The government investment [to help boost the economy] will be important, but at the end of the day, the important measure will be those administrative or non-economic measures that will have to do with the reopening of the borders,” Marques told the Times.
Martins echoed the sentiment, noting that if borders remain closed for the upcoming months, the recession may be as significant as 30%.
“This is big trouble. We don’t have any other industry [to make money from],” he said.
The International Monetary Fund previously noted that the gross domestic product of Macau is expected to record a contraction of 29.6% this year.
However, it added that in 2021 the economy will grow at rate of 32%, a figure which it expects will balance this year’s predicted contraction.
For both Marques and Martins, a strong bounce in 2021 is likely, however the growth will not be sustained throughout the year. “We are at a very low base. The sharpness of recovery has to do with the fact that we are very low. That will increase sharply but it will stabilize somewhat,” said Marques.
However, Martins warned that if a second wave of the pandemic outbreak occurs outside Macau, then there will be no way to escape a protracted recession.
Sovereign ratings no effect on banks
The downgrade of Hong Kong’s sovereign rating to ‘AA-’/Stable from ‘AA’/Negative and the Negative Outlook on Macau’s ‘AA’ sovereign rating this week have no direct rating impact on its rated banks, Fitch Ratings says. Hong Kong and Macau banks’ issuer default ratings are not driven by sovereign support, but are underpinned by institutional support from parent banks or their intrinsic standalone credit profiles, the group said in a statement. The agency noted that banks’ financial profiles are resilient, but their viability ratings will face pressure from economic contractions in Hong Kong and Macau.
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