IMF: Potential real estate crisis in China may have a negative impact on Macau economy

A report from the International Monetary Fund (IMF) highlighted several downside risks, including a sharper contraction in China’s property sector and higher interest rates abroad, which could negatively impact Macau’s financial system and growth.

Private investment is expected to pick up “partly due to commitments from gaming concessionaires to invest in non-gaming sectors.”

However, the IMF warned “a stronger contraction in mainland China’s property sector and higher interest rates abroad” could negatively impact Macau’s financial system and growth. Extreme climate events also posed risks.

While the current account balance improved last year due to strong services exports, the IMF said Macau’s “external position in 2023 was stronger than medium-term fundamentals warranted.” The IMF attributed this in part to “high precautionary savings and subdued investment.”

To address these challenges, the report recommended Macau’s fiscal policy should support non-gaming activity, enhance sustainability of medium-term growth, and contribute to external rebalancing through increased spending on human and physical capital.

The report also emphasized the importance of strengthening environmental protection and disaster preparation plans to guard against the risks posed by extreme climate events.

“Diligent implementation of the government’s environmental-protection and disaster prevention plans would help guard against costly natural disasters,” the IMF said.

Meanwhile, the report said Macau’s economy, heavily reliant on property and tourism, grew an impressive 80.5% in 2023. This growth was driven primarily by a surge in services exports, particularly in the gaming and tourism industries.

Inflation in the region remained low around 1% in 2023 due to declining rental prices, while the current account balance also improved significantly due to the rebound in services exports.

“GDP is projected to grow 13.9% in 2024, driven by further recovery in the gaming sector and pickup in private investment, partly due to commitments from gaming concessionaires to invest in non-gaming sectors,” the IMF said.

Overall, the instituion’s report paints a positive picture of Macau’s property market recovery, but also highlights the need for continued vigilance and strategic policy interventions to ensure the long-term sustainability of the region’s growth.

Staff Reporter