Fitch Ratings Inc said in a Wednesday note on the economic outlook for China, including Macau, that in likelihood “numerous restrictions will remain in place” in the country regarding Covid-19 containment, and a “fully-fledged policy pivot” was not part of its calculations in terms of gross domestic product (GDP) outlook.
Nonetheless the institution suggested Macau’s economy could see in 2023, a “46 percent rebound”, from a “17 percent decline” in 2022.
Report author Andrew Fennell, Fitch’s head of Greater China sovereigns, stated this was based on the institution’s “assumption that gross gaming revenue [in the Macau market] will recover partially to half of the pre-pandemic norm. The mass-market segment will drive a gaming recovery on a gradual easing of travel restrictions for mainland visitors”.
The Fitch report suggested however, that Macau’s real GDP “would remain below” 2018’s level. The paper forecast it could take “at least until end-2025 for GDP to return to its 2019 level, along with a moderate non-gaming diversification” of the economy.
Macau’s GDP declined by 33.4 percent year-on-year in real terms in the third quarter of 2022, according to official data. The year-on-year GDP fall in the third quarter narrowed from the 39.3-percent decline in the second quarter.
Fitch observed that Macau’s financial reserves and other indicators – referred to by the institution as the city’s “fiscal buffers” – would “remain large”, which it said was a “key credit strength”.
Fitch had in April affirmed Macau with a ‘AA/Stable’ rating. It noted in its Wednesday memo, that the ratings “could face downside risks if the gaming sector fails to recover over the medium term, leading to an erosion in the territory’s balance sheet”.
Subsequent to the note, China’s State Council announced on Wednesday 10 points regarding easing of Covid-19 measures on the mainland.
Macau has seen its tourism and casino sectors roiled by three years of Covid-related travel disruption. The city follows mainland standards on relevant restrictions, so there is a chance that Macau’s own easing steps, mentioned in general terms on Tuesday by Elsie Ao Ieong U, the city’s Secretary for Social Affairs and Culture, could follow in terms of specifics, those applied over the border.
Fitch’s report also mentioned that the “near-term recovery trajectory” for Macau “remains volatile, due to a lack of clarity on the timing and pace of policy shifts”.
Mr Fennell added that in Fitch’s opinion: “The recent virus outbreaks in the mainland, including neighbouring Guangdong province, will delay a resumption of mainland package tours to Macau.”
But his report added that Macau “remains better placed to meet pent-up demand from mainland tourists than other Asia-Pacific jurisdictions, once strict Covid-related policies are eased”.
According to the paper, the ratings agency forecasts mainland growth to recover only partially to 4.1 percent in 2023, from 2.8 percent in 2022, “both well below pre-pandemic trends”.
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"The six Macau casino operators should not be penalised for upping expenditure on player incentives, so long as their EBITDA margins are not materially diluted”
George Choi and Ryan Cheung
Analysts at Citigroup