Macau’s ongoing slump in casino gross gaming revenue (GGR) is likely to push down the city’s gross domestic product (GDP) by 6.5 percent in 2016, says Fitch Ratings Inc.
The credit rating agency stated in a Thursday note that the negative impact of falling gaming revenue would be “partly” counterbalanced by “moderate growth in consumption and investment” from ongoing construction of new casino resorts in the Cotai area. Fitch expects Macau’s GGR to go down by 5 percent in 2016.
Macau’s GDP declined by 20.3 percent year-on-year in real terms in 2015, according to official data. The drop in GDP accelerated from the 0.9-percent year-on-year slump seen in 2014, as casino GGR in the city continued to slide.
“Steady gaming revenues in recent months give some indication the sector may be stabilising, but aggressive promotional campaigns [by casino operators] during Chinese New Year are likely to have exaggerated the February release [GGR numbers],” Fitch stated.
Casino GGR in Macau was at near standstill year-on-year in February, down by just 0.1 percent from the same month a year earlier.
Some investment analysts have said that it is still too early to call stabilisation regarding Macau’s gaming sector performance. Several industry insiders expect the decline in GGR to persist this year. The city’s casino revenue has been decreasing for the past 21 months measured in year-on-year terms.
Accumulated casino GGR for the first two months of the calendar year stands at nearly MOP38.20 billion (US$4.8 billion), a decline of 11.8 percent judged year-on-year.
In its Thursday note, Fitch also stated “a material slowdown in China’s economy could impact Chinese demand for gaming services.” The rating agency noted that mainland Chinese tourists represent around two thirds of visitor arrivals to Macau, “but contribute an even higher share of gaming revenues”.
Macau welcomed 20.4 million visitors from mainland China in 2015. The figure was down by 4 percent in year-on-year terms.
Fitch added: “There are also broader China policy risks, including significant changes to visa policies or gaming regulations, though we believe the latter is unlikely to occur in the near-term.”
According to Fitch, the gaming sector accounts for 21 percent of employment in Macau.
In its note, the rating agency affirmed Macau’s long-term foreign- and local-currency-denominated issuer default ratings (IDRs) at ‘AA-’ with a ‘stable’ outlook.
“Macau’s ratings are underpinned by exceptionally strong public and external finances, a credible policy framework, and high income levels,” said Fitch analysts Andrew Fennell and Mervyn Tang.
But the institution added: “The ratings are constrained by the territory’s volatile macroeconomic performance, [and] high concentration in the gaming industry and mainland China, as well as some relatively weak structural indicators.”
The ratings house also observed: “Macau has no general government debt and nine consecutive years of fiscal surpluses have contributed to the accumulation of large fiscal buffers.”
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”So far the Macau government has never failed us. And I think we have always been rewarded appropriately for the amount of investment”
Lawrence Ho Yau Lung
Chairman and chief executive of Melco Resorts and Entertainment