UM expects local economy to contract 3.7% this year

Assistant professor of the Department of Economics at the UM, Kwan Fung (center)

Macau’s economy is expected to contract by 3.7% this year, according to the University of Macau’s 2020 macroeconomic forecast.

Yesterday, Kwan Fung, assistant professor of the Department of Economics at the UM, revealed this forecast.

The negative 3.7% growth is only a baseline estimate and the research team has an upper and lower bound for its prediction, ranging from an “optimistic” view of 4.7% positive growth to “pessimistic” view of a 12% contraction. The UM said these forecasts will be updated to reflect the rapidly changing external environment.

The latest statistics show that Macau’s economy continued to deteriorate in 2019. Negative growth was recorded for three consecutive quarters, placing Macau firmly in a technical recession. The year-on-year growth rates were -3.8% in the first quarter, -2.2% in the second quarter and -4.5% in the third quarter, respectively.

The 2020 estimate is largely based on a continuation of the economic factors that slowed growth last year, including the U.S.-China trade dispute.

According to Kwan, the U.S.-China trade dispute is still the most important factor that dominates the growth potential in Macau, as it threatens to slow the mainland economy on which the SAR relies.

The potential risk of sluggish growth in mainland China should not be underestimated because mainland China is the major tourism source market for Macau. Market reform in the mainland will also probably play a critical role in Macau’s economic growth, according to Kwan.

Although China and the United States have just signed the ‘phase-one’ trade deal to avoid the escalation of economic tensions, the UM team warned that the underlying disagreement has not been completely resolved.

Accordingly, the conflict could reappear in the near future, and economic growth could remain subdued in China and Macau by extension.

Also of relevance to the economic slowdown in Macau is the state of gross gaming revenues across the six concessionaires. Macau gross gaming revenue was down in year-on-year terms in each quarter of 2019, leaving the full year 3.4% less than in 2018. Gaming analysts are divided over whether revenue growth will return this year.

A third factor is the completion of several major infrastructure projects in both the private and public sectors.

In the upcoming two years, most of the casino operators will complete their work related to investment projects. Meanwhile, the completion and opening of the Light Rapid Transit (LRT) and Hong Kong-Zhuhai-Macau Bridge completion means that there are no more major investment projects to fuel growth in the SAR.

“Probably the new regime, the SAR government could think about how to use public investment to boost economic growth and this is largely subject to the market’s response,” said Kwan. However, the scholar warned that Macau cannot pursue public infrastructure projects simply for the sake of maintaining a growth rate without considering the efficiency of these projects.

In 2020, a lack of new investment will contribute significantly and negatively to the economic growth of the region.

Moreover, Macau’s exports of services are expected to contract 4.3% in 2020. Exports of goods are expected to decline even faster, by 6% in 2020.

Connected with the weak growth in consumption and investment, imports of goods are expected to rise at a slower rate of 0.1% in 2020. Amid deterioration in export of services, the import of services is also expected to decline. The growth rate of the import of services is forecast to decrease by 0.5% in 2020.