Macau’s recovery slower than expected; linked to Chinese economy

By Mia Chapman Updated
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An investors service has remarked that Macau’s gaming-dependent economy should return to its pre-pandemic levels by 2023.

Moody’s Investors Service said Macau needs to diversify its economy to future proof it against further damage.

In a new report, the research firms notes that while the Macau economy was the worst hit by the coronavirus globally, the casino hub maintains strong sovereign finances.

Moody’s has an Aa3 rating, with a “stable” outlook on Macau’s credit grade.

“The Aa3 rating reflects a balance between inherent credit constraints and strengths. The growth volatility of Macau’s economy is among the highest of all rated sovereigns,” said the credit evaluator.

“While efforts to diversify growth away from the gaming industry have been ongoing since 2015-16, Moody’s does not expect them to yield material results over the near-term.”

“But despite the highly volatile nature of economic growth, Macau’s vast fiscal and external reserve, significantly stronger than those of similarly rated peers, and very high per capita incomes continue to support its credit profile.”

Entering 2021, Macau was widely viewed by analysts as poised for a more rapid rebound from the pandemic than rival gaming markets, including Las Vegas.

Tourists from China key to Macau rebound

However a series of fits and starts and head fakes prompted investors to grow frustrated with the pace of its recovery.

As a result, analysts expect Macau’s gaming economy won’t flirt with pre-pandemic levels until 2022, with a more earnest recovery developing in 2023.

“Under Moody’s assumptions, a full recovery in tourist arrivals and gaming revenues will not occur until early 2023,” the ratings agency said.

“These assumptions are underpinned by tourist arrivals gradually recovering in the second half of this year, such that total arrivals will still remain about 60 per cent below pre-coronavirus levels in 2021, before improving to a record 25 per cent shortfall in 2022 and an increase relative to pre-pandemic levels only in 2023.”

About 70 per cent of Macau visitors hail from mainland China.

Hong Kong, another major artery for travellers entering the gaming hub, was recently rebuffed in its efforts to establish a travel bubble with Macau.

Singapore’s Transport Minister said it was “very likely” the city-state would not be able to meet the conditions required for starting air travel bubble flights with Hong Kong, the first scheduled on May 26, due to a rise in the number of COVID-19 cases in Singapore.

Ong Ye Kung made the remarks at an online press conference by Singapore’s COVID-19 multi ministry task force.

The official noted that Hong Kong meanwhile, was a “very safe region”, with the number of daily COVID-19 cases ranging between two and zero.

Macau is the only Chinese territory where gambling is legal and its proximity to the country and its dependence on tourists from there level the region to the performance in the world’s second-largest economy.

“Macau’s gaming industry is also vulnerable to slower growth in China and Chinese government policies, as well as competition from neighbouring destinations such as Cambodia, Singapore and Japan,” Moody’s said.

“Moreover, as a one country, two systems’ policy, Macau’s credit profile is closely tied with that of China’s across economic, institutional and political aspects.”

China’s GDP grew at a record pace of 18.3 per cent in the first quarter and is expected to be one of the fastest growing major economies in 2021, which is good news for Macau.

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