End in sight?

The Gross Domestic Product figures for the third quarter have just been released. They confirm the negative trend that started mid-2014. Compared to the same quarter last year, GDP is down by over 24 per cent. That value is in line with the losses for the first half of the year and, consequently, the fall in the year to September is of a similar scale.
These figures suggest, however, that the rate of contraction has stopped accelerating. The homologous quarterly rate turned negative – about minus 2 per cent – in the third quarter of 2014. Then it accelerated noticeably, jumping to figures around minus 17 per cent in the fourth quarter of last year and minus 25 per cent in the first quarter of the current year. The apparent stabilisation of the contraction rate, even a small reversion in the last quarter, is surely welcome and will provide some respite for many businesses.
This stabilisation coincided with the pickup in the number of visitors. Their number, in the third quarter, went up by a bit more than 10 per cent, compared with the previous year. But that ‘summer’ peak is a characteristic feature of the visitors’ tally. As has been the case in the past, it would be premature to associate the two too closely. Their correlation has been much weaker than sometimes many appear to believe, and stronger growth drivers are elsewhere.
The number of hotel guests is also up. This is a class of visitor that is usually associated with higher levels of expenditure. The pattern of quarterly change in the last few years is somewhat similar to the one displayed by the number of visitors albeit less volatile. Hotel guests might in some way anticipate and contribute more decisively to the flattening of the GDP trend. But the per capita expenditure of visitors, gambling excluded, is also contracting, and annulling to some extent the benefits we might expect from the rise in the number of guests, should the next quarters confirm their sustained growth.
In fact, the usual suspects seem to be at work. Exports of services have been going down for the last five quarters. They include the services provided by casinos to non-residents and all tourist-oriented activities, the main drivers of the local economy. Their homologous rate of contraction has stood above 30 per cent throughout the current year. Private consumption is rising at lower rates than before, and public expenditure stands at comparatively small absolute figures. They are no match for the shrinking exports. The GDP decrease has not got bigger because on the one hand the imports of services also declined in parallel providing some automatic (partial) stabilizing effect; while on the other hand the next phase of Cotai has spurred increased investment. None of these indicators unequivocally upholds the definite reversion in the GDP trend. The evidence is not yet enough to conclude that the end of the tunnel is in sight.