IMF projects growth to slow to 3.3%, warns on diversification target

The International Monetary Fund’s (IMF) projects Macau’s real GDP growth to slow from 4.7% in 2025 to 3.3% this year and around 3% over the medium term, warning that reaching the target of 60% non-gaming GDP by 2030 will require more investment in skills, talent and infrastructure.

The IMF Executive Board concluded its 2026 Article IV consultation with Macau on Sept. 24, projecting real gross domestic product (GDP) growth to slow from 4.7% in 2025 to 3.3% this year, 3.1% in 2027 and around 3% over the medium term, while warning that “further efforts are needed to achieve an effective and long-lasting economic diversification.”

The IMF said Macau’s economy “has remained resilient despite external headwinds, although growth continues to rely heavily on the strong performance of the gaming and tourism sectors.” Visitor arrivals surpassed pre-pandemic levels in 2025, but gaming revenues remain below their pre-pandemic peak, reflecting regulatory changes, strengthened anti-money laundering and counter-terrorist financing (AML/CFT) enforcement and evolving visitor spending patterns.

The recovery “has yet to generate a broad-based rebound in domestic demand,” the IMF said, with investment subdued amid tight credit conditions, heightened uncertainty, weakness in the property market and under execution of public spending.

Data showed real GDP grew 7.1% year-on-year in the first quarter of 2026 but slowed sharply to 0.3% in the second quarter, reflecting adverse weather and dampened gaming demand during the FIFA World Cup. Investment fell 9.3% in the first half of 2026. Headline inflation rose to 1.2% year-on-year in June 2026, from 0.7% in December 2025. Gross gaming revenue (GGR) rose 9.1% in 2025 to about 85% of its 2019 level, with the mass-market segment accounting for 73% of total GGR. In the first six months, GGR grew a further 6.9% year-on-year.

The general government surplus reached 7.0% of GDP in 2024 and 8.3% in 2025, driven by higher-than-budgeted non-gaming non-tax revenues and significant expenditure under execution, particularly in welfare spending. By June, gaming revenue had reached 55% of the budgeted target, while expenditure execution lagged at about 42%. Targeted LPG and petrol subsidies amounted to about 0.03% of GDP, with a consumption rebate program at 0.1% of GDP. Fiscal reserves were estimated at 867% of central government recurrent spending by the end of 2025, “sufficient to finance essential recurrent spending for more than eight years even under a severe revenue shock.”

The IMF projected a general government surplus of 9.7% of GDP in 2026, with fiscal reserves maintained at about 850% of recurrent spending.

The IMF said achieving the target of increasing the share of non-gaming activities to 60% of GDP by 2030 “will require further investment efforts to build skills, attract talent, close physical and digital infrastructure gaps, enhance the efficiency and effectiveness of public administration, and improve the business environment.” Support measures, including those funded by the envisaged MOP20 billion Government Guidance Fund, “should be targeted, time-bound, and performance-based to safeguard competition and limit resource misallocation.”

On climate resilience, the IMF said priorities include strengthening flood defenses and drainage systems, climate-proofing critical infrastructure and tourism facilities, improving land-use planning and building standards in high-risk areas, and strengthening early-warning systems. “The fiscal cost of climate adaptation and investment should be assessed and incorporated into Macau SAR’s medium-term fiscal framework,” it said.

Despite weak domestic demand, the labor market “remains solid amid declining labor supply,” with overall unemployment at 1.6% in the first quarter. The labor force participation rate has declined amid adverse demographic trends, with the working-age population beginning to contract in 2025. The Base Rate was lowered to 4% in December 2025 and has since remained unchanged.

Nonperforming loans fell slightly to 4.0% in the first quarter of 2026 from 5.0% in the first quarter of last year but remain elevated, reflecting large exposures to the Chinese mainland’s property sector, high interest rates, falling property prices and a sluggish small-and-medium-sized enterprise (SME) recovery. The banking system, however, remains well-capitalized, with an average capital adequacy ratio of 16.8% and return on equity of 10.5%. The IMF projected inflation to rise to 1.8% in 2026 and around 2.2% over the medium term, with unemployment at about 1.7% from 2026 to 2030.

Macau’s external position in 2025 was preliminarily assessed as “substantially stronger than the level implied by medium-term fundamentals and desirable policies,” with a current account surplus of 39.6% of GDP, up from 33.7% in 2024. Foreign exchange reserves stood at USD30.6 billion in December 2025, equivalent to 15.0 months of imports and 91.1% of M2. Residential property prices fell 9.4% in 2025 and remain about 27% below their 2020 peak. The authorities eased macroprudential measures in December 2025, raising loan-to-value limits from 70% to 80% and providing further stamp duty waivers.

Risks to the outlook are “tilted to the downside,” including further escalation of the Middle East conflict and trade tensions, a longer-than-expected adjustment in the Chinese mainland’s property sector, tighter global financial conditions, cyber threats, increased gaming competition and climate-related disasters. The IMF recommended “temporary, time-bound, and targeted measures” – such as cash transfers to vulnerable groups – should external downside risks materialize.

The authorities broadly shared staff’s assessment of the economic outlook but viewed risks as more balanced and were slightly more optimistic on the near term, particularly on inflationary spillovers from the Middle East conflict, given that a significant share of Macau’s consumption basket is sourced from the mainland. They concurred on the challenges posed by SMEs and the property market, yet remained confident the non-gaming sector would continue to expand, supported by government initiatives and gaming concessionaires’ investments.

On fiscal policy, the authorities saw the current role as appropriate, viewing it as a countercyclical tool to cushion downside shocks and support recovery. They considered Macau’s existing fiscal framework and substantial reserves a strong anchor for fiscal sustainability and did not view adopting a formal medium-term fiscal framework as a near-term priority.