Macau will continue to face economic headwinds into the third quarter, warned the Secretary for Economy and Finance yesterday, following dual revelations in past weeks that August gross gaming revenue dropped the fastest this year to date and that the city has officially entered recession.
According to data released by the Statistics and Census Service late last month, the economy contracted by 1.8% year-on-year in the second quarter of 2019, following a 3.2% contraction in the first quarter. For the first six months of the year, Macau’s economy is down 2.5% in real terms compared to a year earlier. A technical recession is defined as two consecutive quarters of economic decline.
The Office of the Secretary for Economy and Finance said in a statement at the time that the local economy is expected to remain in recession for the rest of the year.
Speaking to the media yesterday afternoon, Secretary Lionel Leong warned that the economic contraction will likely persist into the third quarter.
Leong attributed the 2.5% decline in gross domestic product to a difficult comparison base a year earlier. According to a statement released by the government, the construction of several large but isolated public expenditure projects in the first half of 2018 – for example the construction of the Hong Kong-Zhuhai-Macau Bridge border checkpoint – had inflated the comparison period. The statement said that this led to the relative decline in gross domestic product in the first six months of this year.
However, Leong assured that the local government will closely monitor the unemployment rate and consumer purchasing power of Macau residents in the coming months, and intervene only if necessary.
Gross gaming revenue fell 8.6% year-on-year in August and 3.5% in July, putting the gaming sector on track to record one of the worst growth quarters since the industry’s recovery in 2016. With just one month remaining in the third quarter, Leong expects gross domestic product will reflect the situation on casino floors.
The gaming sector directly accounted for about half of Macau’s economy in 2018, but was also closely tied to the other half, including the real estate, hotels, restaurants and retail sectors.
Suggesting that the economic downturn was out of the government’s hands, Leong said that although the data shows a continuous fluctuation in the economy, they are not periodic or seasonal fluctuations, but rather the result of some external incidents or factors.
The Secretary said the trade conflict between China and the United States, and the resulting change in Renminbi exchange rates had negatively affected the SAR. The International Monetary Fund has lowered its growth expectations for 2019 and 2020 several times this year, also citing the worsening conditions of the China-U.S. trade war.
As a small economy reliant on Chinese visitation and a currency indirectly pegged to the U.S. dollar, Macau is highly vulnerable to shocks to the world’s two largest economies.
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