Fitch Ratings Inc says a hard landing for China’s economy is a “high-impact downside risk” for Macau’s gaming industry.
Macau’s “gaming-dominated economy is vulnerable to economic developments in mainland China – its dominant source of demand,” the rating agency said in its latest outlook.
But Fitch assumes Beijing will be capable of rebalancing the economy and avoid a hard landing.
Fitch yesterday maintained Macau’s long-term rating at ‘AA-‘, the fourth-best investment grade with a stable outlook.
Gross gaming revenues (GGR) are equivalent to around 85 percent of Macau’s gross domestic product. Macau raked in MOP360.7 billion (US$45 billion) in annual GGR last year, an increase of 18.6 percent over 2012.
Fitch said last week that Macau’s gaming market “remains strong”.
Direct taxes from gaming accounted for 81.5 percent of the Macau government’s total revenue last year, according to official data.
Macau is characterised by above-average volatility with respect to growth, inflation and government revenues, Fitch said.
The city’s real GDP growth has averaged 14.3 percent for the five years to 2013 and Fitch forecasts GDP will grow “at an average rate of 9.8 percent in 2014-2015”.
“This makes Macau the fastest-growing economy amongst its ‘AA’ rating peers, where average real GDP over the same period is expected to be much lower at 2.4 percent,” it said.
But it warned: “Macau’s limited range of macroeconomic policy levers is a weakness relative to rating peers.”
While Fitch assumes no substantial changes in Beijing’s policy towards gaming and tourism that could have a serious impact on Macau, it says a severe economic shock in China “could trigger a negative rating action” for Macau, given the close economic and financial linkages.
