Fitch Ratings Inc said it expects Macau’s gross domestic product (GDP) to grow by 2.5 percent in 2017 “supported by improving gaming revenues from new casino openings”.
“Data suggests the VIP and mass-market customer segments recorded positive growth in fourth quarter 2016, increasing the likelihood of a recovery this year,” the ratings agency said in a statement on Monday.
Macau’s market-wide casino gross gaming revenue (GGR) in the fourth quarter of 2016 expanded by 10.2 percent year-on-year. That represented the best quarterly performance the Macau market has seen since the opening three months of 2014, according to official data.
Revenue from VIP gaming grew by 12.6 percent year-on-year in the three months to December 31, while mass-market gambling rose by 7.4 percent year-on-year.
Fitch said it expects the Macau market to report a 6-percent increase in gaming revenues for 2017.
On Monday, the ratings agency affirmed Macau’s rating at ‘AA-’ with a stable outlook, “underpinned by the territory’s credible policy framework and exceptionally strong public and external finances, which continue to strengthen despite three consecutive years of economic contraction”.
Macau’s economy began to rebound in the third quarter of 2016, with GDP expanding by 4.4 percent in the three months to September 30, followed by a 7.0-percent increase in the fourth quarter. For the whole year of 2016, the economy of Macau still shrank by 2.1 percent year-on-year in real terms, an improvement from the 21.5-percent dip in 2015.
The Macau government’s budget “remains in strong surplus despite the recession,” said Fitch in Monday’s statement.
The Macau government collected a total of MOP7.26 billion (US$950.7 million) in direct taxes from gaming in January, up by 7.7 percent year-on-year, according to data disclosed last week by Macau’s Financial Services Bureau.
Overall, the figures show a 6.0-percent year-on-year increase in government revenue for January, to approximately MOP9.0 billion. Direct taxes from gaming brought in 80.7 percent of the Macau government’s total revenue in January.
Due to the increase in revenue, the Macau government surplus rose in the first month of 2017. The surplus in January was MOP6.38 billion, up by 32.7 percent from the prior-year period.
The Macau government’s 2017 budget forecasts a surplus of MOP5.57 billion – about 1.5 percent of GDP – based on flat gaming revenues relative to the 2016 budget assumption. The Macau government has a track record of taking a conservative approach when estimating gaming-related tax revenue and surpluses in its yearly budgets. Macau’s Chief Executive, Fernando Chui Sai On, forecast in November the city’s 2017 casino GGR would total MOP200 billion. That is the same number the government forecast for 2016.
Fitch said on Monday it forecasts a 2017 budget surplus of about 5.0 percent of GDP, reflecting the agency’s expectations of “roughly 6-percent gaming revenue growth in 2017”.
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"VIP growth [in Macau] is roaring back on the heels of last year’s economic stimulus – but we think this could stall once the effect of the stimulus and the Chinese housing bubble wears off – as it did in 2013-14"
Cameron McKnight and Robert Shore
Analysts at Wells Fargo Securities