Moody’s forecasts 20% plunge in city’s GDP

American business and financial services company Moody’s Corporation is predicting the city’s gross domestic product (GDP) for this year will plummet 20%, contrary to the 3% rise that the firm had forecasted earlier.
The SAR’s GDP was MOP434.7 billion last year and per capita GDP stood at MOP645,438.
The GDP last year shrank 4.7% in real terms and was the city’s first negative GDP growth in three years.
According to Moody’s report, based on the city’s previous post-recession economic recovery in 2015-2016, the firm expects that GDP will sharply bounce-back 2% in 2021. Macau’s economic output contracted 20.3% in 2015 due to a decline in casino revenue and a decrease in visitors amid China’s anti-corruption campaign and slowing economy.
“However, prolonged coronavirus effects would present downside risks, particularly if they start to impact investment plans for major gaming operators,” the firm said.
Meanwhile, Moody’s still continues to classify the local profile as “Aa3 stable,” a rating that the company says is the result of the “absence of government debt and large and growing fiscal and external buffers that provide the SAR significant capacity to counter future shocks.”
As in previous reports from the ratings company, Moody’s classified local GDP growth as “volatile” due to the region’s size and the concentration of economic factors in the gaming sector.
However, they noted that continuous efforts to diversify products were needed.
“Macau remains susceptible to potential economic and policy outcomes in China (A1 stable) that could negatively affect gaming and tourism,” the firm said.
Previously, the ratings company had issued warnings about the need for “further progress on diversification toward non-gaming activities,” which, according to Moody’s, will support more stable GDP growth.
“The stable outlook reflects our assessment that credit risks are balanced. On the downside, the shock from the ongoing coronavirus outbreak subjects the Macanese economy to a more marked contraction, beyond our baseline expectations, even as economic diversification away from the VIP gaming sector could prove less effective than we assume,” Moody’s said.
However, they added that diversification into mass-market gaming and non-gaming tourism may be more rapid, thus “lowering the SAR’s exposure to shocks to the VIP gaming sector, and on Macau’s fiscal and foreign exchange reserve buffers even more than we expect.”
Meanwhile, in a separate statement, the group expects that the earnings and credit metrics of Wynn Resorts will weaken while operations in the U.S. and Macau are negatively affected by facility closures and reduced travel and leisure spending. However, they expect that earnings and credit metrics will improve when economic conditions recover.
“The negative outlook reflects the uncertain duration and recovery from the coronavirus- related earnings and cash flow pressure, which will lead to higher debt even when property earnings recover,” they added.