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City to enter a deeper recession in 2020 due to coronavirus – Fitch

Fitch Solutions Macro Research predicts Macau will enter a ‘deeper recession’ in 2020 due to the impact the novel coronavirus is having in tourism visitation, and now estimated that the local economy will drop by 3.8 per cent drop this year, instead of the 3.2 per cent fall estimated last year.

‘Even if the coronavirus is contained, a prolonged slowdown of the Chinese economy would weigh on gaming revenues […] Over the coming months, we expect Macau’s services exports (which accounts for approximately 80 per cent of GDP ) to take a hit as the coronavirus epidemic will significantly impact tourist arrivals from the Mainland,’ the Fitch Ratings affiliate stated.

In order to contain exposure to the virus, Macau has already suspended its Individual Visit Scheme to halt solo travelers from mainland China, one of the most common types of visa issued by the SAR to travelers from mainland China, while Chief Executive Ho Iat Seng has announced a two-week closure of all 41 local casinos.

‘Given that a vaccine to the coronavirus has yet to be found, we note a significant risk of an extended closure of the casinos […] We currently forecast China’s real GDP growth to slow to 5.9 per cent in 2020, from 6.1 per cent in 2019 […] Indeed, gaming revenues have already contracted by 2.5 per cent y-o-y over in January-November 2019 amid slowdown of the Chinese economy,’ Fitch solutions noted.

Local gross gaming revenues having already dropped by 11.3 per cent year-on-year in January to MOP22.12 billion (US$2.7 billion) before the suspension and with Chinese New Year visitor numbers having fallen 78.3 per cent year-on-year to 261,069.

Meanwhile, analysts are expecting gaming results in the first quarter of this year to fall as much as 50 per cent year-on-year.

Fitch Solutions also expected investment growth in Macau to remain subdued, despite policies announced by Beijing to develop the local financial sector.

In December 2019, Beijing announced a slew of measures to develop Macau’s financial sector such as an establishment of an RMB-denominated stock exchange and increasing the cap on remittances transfers from Macau to the mainland to RMB80,000, the same level as the cap in Hong Kong.

‘However, given that gambling remains illegal in mainland China, Beijing could implement measures to tighten scrutiny of funds flowing from Macau into the mainland. This could introduce greater bureaucracy into the system and deter investors,’ the financial company noted

For Fitch, until Before presented concrete plans to reconcile the conflicting objectives of developing Macau’s financial sector and limiting inflows of gambling proceeds to the mainland, investment would remain subdued.

Previously, the Senior Director for Asia Pacific Sovereigns at Fitch Ratings, Stephen Schwartz, told Macau News Agency (MNA) that the impact caused by the Wuhan pneumonia outbreak drop in visitor numbers to Macau seems to be “worse” than predicted, but did not expect an impact in the city’s credit rating.