Lost one-fifth of GDP in 2015
According to U.S. broadcast outlet CNN, Macau has the “worst performing” economy in the world.
In a new report, CNN blamed the slowdown on an anti-corruption campaign that began in June 2014 and slowing economic growth across the region. Due to those factors, the jurisdiction’s gross domestic product shed one-fifth of its value in 2015. According to other reports, Macau has lost an estimated $130 billion in total value since the recession kicked in.
The Macau Daily, while conceding that growth rates in the city “may be the slowest in the world,” also reported that income rates were still rising at the end of last year, and the unemployment rate is hovering at a healthy 1.9 percent—a rate the United States would be glad to claim in its own post-recession doldrums.
Small businesses in the MSAR have been most affected by the downturn, the newspaper reported. Though visitation held steady in 2015, with approximately 30 million incoming tourists, Helena de Senna Fernandes, head of the Macau Government Tourism Office, reported that non-gaming visitor spending was down 17 percent for the year.
“We’ve got no buffers—all our eggs are in one basket,” said Malcolm McLaughlan, general manager of the Grand Coloane Resort, who has cut room rates by about 30 percent. “To me that’s the manifestation of Macau being a one-trick pony.”
Macau is under orders from Chinese President Xi Jinping to diversify beyond an economy that for years has been reliant on a single industry: gaming. The city and its chief industry are working to comply—witness new mass-market attractions at resorts on the Cotai Strip—but it could take years to right the ship.
According to the Asia Gaming Brief, analysts are already downbeat on March gross gaming revenues, and say the weaker run-rate may extend through April. Though Sanford Bernstein predicts the first quarter will show an incremental improvement over the fourth quarter of 2015, it also says Q2 may be flat. Then it foresees an improvement in GGR from the end of Q2 into the rest of the year.
The weakness is in VIP and high-end premium mass, say Bernstein analysts. “However, we see numerous catalysts materializing over the next one to two years to fuel the growth in mass market, which we believe is the structural driver of Macau market. The key catalysts driving mass market will be infrastructure development, new casinos’ ramp-up, and the resilience of the Chinese consumer.”
Sands China, Bernstein contends, will emerge the big winner in the paradigm shift from remains a VIP to mass market. “Its recent outperformance with respect to improving margin and expanding market share shows the company’s mass strategy and critical mass centered in Cotai is paying off,” said Bernstein. Its 3,000-room Parisian, due to open in September, “adds to Sands’ critical mass on Cotai with a wholly mass-oriented property, which we think will do well with Chinese customers.” Bernstein rated Sands China “outperform.”
Analyst Tim Craighead of Bloomberg Intelligence agrees that Sands China “stands out among Macau casino operators for its focus on mass-market clientele and significant non-gambling business. These factors have underpinned revenue and higher profitability versus many peers during the 2014-2015 downturn.”
Moody’s Investors Services, meanwhile, could downgrade Macau’s current Aa2 credit rating by “one notch” if the downturn persists. According a report cited in the Macau Business Daily, the upcoming review will compare Macau to “oil exporters such as Abu Dhabi, Saudi Arabia, UAE, Kuwait and Qatar” based on a “lack of diversity and a sharp fall in the key source of government revenues over the past year.”
Moody’s still expects a longer-term decline in gaming revenues as the anti-corruption campaign continues. Macau has undergone a “shock to the mainstay of its economy,” says Moody’s, and its current fiscal reserves of MOP430 billion (US$53.8 billion) “could dwindle over the medium-term” if used to fund deficits beyond 2017.
Macau’s credit rating could also be affected by the “change in the outlook for China’s Aa3 rating to negative,” says Moody’s, due to the “close financial, institutional and political linkages” between the Mainland and the city.
Fitch Ratings says the casino industry’s lower GGR is likely to push down the city’s gross domestic product by 6.5 percent in 2016, though the negative impact would be “partly” counterbalanced by “moderate growth in consumption and investment” from development in the Cotai area, according to GGRAsia.
“Steady gaming revenues in recent months give some indication the sector may be stabilizing, but aggressive promotional campaigns by casino operators during Chinese New Year are likely to have exaggerated the February GGR release,” Fitch stated. Casino GGR in Macau flat-lined in February, down by just 0.1 percent from the same month in 2015.
