Moody’s Investors Service says it expects Macau’s economy to contract by 6.0 percent year-on-year in 2016, amid falling gaming revenues. The rate of decline will slow to 2.5 percent in 2017, and that would “delay any recovery in growth to positive territory to beyond 2018,” suggested on Tuesday the ratings agency.
“We expect that growth will continue to contract over our rating horizon of the next two to three years, although the pace of decline should slow,” said Moody’s in its annual credit analysis of Macau.
Macau’s gross domestic product (GDP) contracted by 13.3 percent year-on-year in real terms in the first quarter of 2016, according to official data.
The global credit ratings agency in May downgraded Macau’s government debt issuer rating to Aa3 from Aa2 and assigned it a negative outlook.
Monthly casino gross gaming revenue (GGR) in Macau has fallen year-on-year for 24 months in a row. Total casino GGR for the first five months of 2016 has declined by 11.9 percent year-on-year, to MOP91.91 billion (US$11.5 billion).
In Tuesday’s report, Moody’s said “the economic shock to the gaming sector stemming from a decline in tourist arrivals from mainland China has resulted in a sharp drop in the [Macau] SAR’s headline GDP”.
It added: “Our forecasts of a slowdown in China could weigh on tourist inflows and spending in the near term. This situation, coupled with a maturing gaming industry and the ongoing anti-graft campaign will leave gaming revenues under pressure.”
The slump in GGR has had a significant impact on the city’s gross domestic product. In 2015, the economy shrank 20.3 percent year-on-year, extending a 0.9 percent contraction seen in 2014.
The ratings agency however expects ongoing investments from the gaming sector to support capital formation in Macau, especially with new casino resorts opening on various dates between this year and the end of 2017.
Moody’s also noted: “Macau’s fiscal reserve buffer is ample, despite surpluses having dwindled considerably over the last two years. The absence of public debt allowed the SAR to accumulate total reserves amounting to MOP345.1 billion (US$43.2 billion) or 94 percent of GDP at end-2015.”
The Macau government surplus was down by 35.8 percent year-on-year in the first five months of 2016 to MOP16.36 billion, official data showed.
“Our expectation of a decrease in gaming revenues in 2016 and 2017 suggests that Macao’s economic, fiscal and external metrics will likely weaken considerably from prior robust trends,” said Moody’s.
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"The [Macau] government has a lead in this subject in regards to what should be done after the [gaming] concessions expire. We will be first listening to what the government will say”
Ambrose So Shu Fai
Vice-chairman and chief executive at Macau casino operator SJM Holdings