Fitch Ratings Inc says it expects Macau to experience “a much deeper economic contraction in 2020” than other ‘AA’ -rated peers “whose economies are less dependent on tourism”.
“Macau’s concentration on gaming tourism exposes its economy to substantial disruptions from lockdown measures imposed to contain the coronavirus pandemic,” stated the ratings agency in a Monday report. “This is despite a limited number of locally confirmed cases and a significant counter-cyclical policy response,” it added.
Fitch affirmed Macau’s ‘AA’ ratings but maintained a negative outlook on the city’s economy.
The ratings agency said it projects Macau’s economy will shrink for a second straight year, declining by 24 percent in 2020. Such forecast is based on the institution’s assumption of a “roughly 40 percent” fall in casino gross gaming revenue (GGR).
Macau’s gross domestic product (GDP) fell by 4.7 percent year-on-year in real terms for the whole of 2019, according to official data. The city’s accumulated casino GGR for full-year 2019 declined only by 3.4 percent year-on-year.
“Macau’s overwhelming dependence on gaming tourism constitutes one of its principal rating constraints,” stated Fitch. “Macau is one of the world’s biggest gaming tourism hubs and Fitch estimates the gaming industry represents 51 percent of aggregate activity, 22 percent of employment, and more than 80 percent of fiscal revenue,” it added.
In mid-March, the Macau government halved its forecast for the city’s casino GGR in full-year 2020. Such forecast for this year is now MOP130 billion (US$16.3 billion), down from a projection of MOP260 billion, announced in November.
The government said it now expected a MOP38.95-billion deficit for 2020, and that it would have to tap its “extraordinary” financial reserves to cover the shortfall.
Macau’s Chief Executive, Ho Iat Seng, said on Monday that the government would strive to diversify the city’s economy, which he described as “over-reliant” on the gaming industry. His remarks were made at the city’s Legislative Assembly, when announcing the government’s policy address for 2020.
“The gaming and tourism sectors are the ones most affected by the pandemic, and this impacts other related industries,” said Mr Ho. The city’s leader also said the Covid-19 pandemic had showed “once again, the vulnerability and enormous risks of the Macau economy’s excessive dependence on the gaming and tourism industries”.
He added: “Despite the efforts of the previous Macau governments, over the years, in promoting economic diversification, there are no notable results.”
In Monday’s report, Fitch said the stringent measures implemented by the Macau authorities to contain the local spread of the coronavirus – including a 15-day suspension of casinos in February and tighter restrictions on visitors – “inflicted a devastating impact on the gaming industry”.
Aggregate Macau casino GGR for the first quarter of 2020 stood at approximately MOP30.49 billion, a contraction of 60.0 percent year-on-year, showed official data.
“Our baseline assumes the pandemic will be contained by the second half 2020, and GDP growth will recover to 12.6 percent in 2021,” stated the ratings agency. “Nevertheless, risks to our forecast remain, dependent on the evolution of the pandemic globally. Consumer confidence in travel safety will take time to be fully restored even after travel restrictions are lifted.”
Fitch said however that Macau’s ratings were affirmed due to the city’s “exceptionally strong public and external finances,” and the government’s “commitment to fiscal prudence” throughout economic downturns.
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"The travel impediments [in mainland China] will lead to reduced visitation into Macau for the next few weeks at least, with Chinese New Year visitation being impacted"
Vitaly Umansky, Tianjiao Yu and Kelsey Zhu
Analysts at Sanford C. Bernstein Ltd