Fitch lowers SARs’ economic growth forecast

Fitch Ratings forecasts Macau’s economy will only expand by 19% in 2022, based on the assumption that gaming revenue will recover to about 44% of its pre-pandemic levels, far lower than the initial expectation of 36%.

The credit rating agency expects that gaming tourism recovery will pick up momentum in the second half of this year, underpinned by a gradual resumption of inbound tourism from mainland China. 

Recently, Macau’s gaming revenue has recorded steep downturns, particularly in March, where it recorded the lowest figures in 18 months at MOP3.67 billion, as a worsening Covid-19 outbreak in China battered tourism in the city.

During the three-day Ching Ming Festival in China, Macau only recorded 48,536 tourist arrivals, a 50% fall compared to the nearly 99,600 arrivals reported last year.

However, Fitch noted that as visitation normalizes further, “We project growth will accelerate to 24% in 2023.” The firm made this projection in a statement issued yesterday. 

Although the timeline for full normalization of mainland tourism and easing of international border restrictions remains uncertain, and depends on the further development of the pandemic and containment policies, the agency said that the SAR remains well-placed to meet pent-up demand from short-haul mainland Chinese tourists once travel impediments are removed.

However, Fitch forecasts Macau’s budget deficit will decline to 7.8% of GDP in 2022 from 14.1% in 2021, due to a partial gaming revenue recovery. 

The approved 2022 budget will allow the authorities to draw down up to MOP30.3 billion from the fiscal reserve, or 4.7% of its end-2021 level, for social welfare, public investment and the economic recovery. 

“We project the deficit will further narrow to 0.5% in 2023 as the gaming recovery advances, and in light of Macau’s long record of fiscal prudence,” it added.

Macau’s external finances are among the strongest across Fitch-rated sovereigns. 

“We forecast the current account surplus will widen to 15.6% of GDP in 2022, and 23.4% in 2023, as the gaming sector recovers. We project sovereign net foreign assets (SNFA) at 300% of GDP in 2022, and for the territory to remain a large net external creditor (269% of GDP), both well above the ‘AA’ median,” projected the firm.

Meanwhile, the SAR is expected to have continued integration with mainland China, leading to a stronger role by the central government in policymaking and a gradual convergence of governance and institutional management practices with mainland China.

The group also recalled that fiscal reserves increased by 11% from the end-2019 level to MOP643 billion at end-2021, equivalent to about seven times its projected 2022 budget expenditure. 

Therefore, the territory’s fiscal buffers are expected to remain considerable over the medium term.

“Macau is the only entity in Fitch’s global sovereign portfolio without any outstanding government debt, which puts it well below the ‘AA’ median of 46.9% of GDP at end-2021,” the report concluded.