Local economy should grow by 53pct in 2021 – Fitch

Rating agency Fitch Ratings estimates that the Macau SAR economy will rebound by 53 per cent in 2021 and upgraded the SAR’s long-term outlook from ‘negative’ to ‘stable’ citing an expected recovery in gaming tourism.

The forecast follows estimates by the International Monetary Fund (IMF) for a 61.3 per cent GDP growth this year, after falling 56.3 per cent in 2020 due to the impact of the pandemic.

The agency’s forecast assumes a recovery in gaming revenue to about half of pre-pandemic levels and a stronger gaming and tourism recovery in the second half of this year when compared to the first six months.

‘We expect the mutual cross-border travel restrictions to be eased further in the months ahead as the vaccine rollout gathers momentum in the mainland and Macao. A potential quarantine-free travel bubble with other markets such as Hong Kong should also support a gradual return of inbound visitors to the gaming tourism hub,’ Fitch indicated in a dispatch.

Fitch also forecasted that the local budget deficit will narrow to around 5 per cent of GDP in 2021, as gaming tourism gradually recovers and expenditures are kept under budget.

However, it warned that uncertainty surrounding Macau’s recovery trajectory remains elevated, citing the precautionary travel restrictions imposed in the mainland for virus containment during the 2021 Chinese New Year, which prevented many mainland tourists from visiting Macau, and the impact by changing economic and regulatory conditions in the mainland in the VIP segment.

‘Macao’s narrow economic base, high concentration in gaming tourism from mainland China, combined with the territory’s susceptibility to potential policy changes that affect China’s treatment of gaming tourism, constitute its principal rating constraints. These have contributed to historically high levels of GDP volatility and exacerbated the coronavirus shock to Macao relative to the other ‘AA’ rated peers,’ the finance group added.

Still, it underlined that the SAR’s ‘exceptionally strong public and external finances’, and a ‘demonstrated commitment to fiscal prudence’ have served as significant buffers to mitigate the unprecedented shock from the coronavirus pandemic and anchor macroeconomic stability.

Macau authorities drew down MOP46.6 billion from the fiscal reserve – accounting for 8 per cent of total reserves at end-2019 – to fund last year’s budget deficit and have recently unveiled a new stimulus package amounting to about MOP30 billion, or 10 per cent of projected 2021 GDP, to support the recovery.

‘We expect fiscal buffers to remain considerable over the medium term, providing substantial headroom should the recovery prove more prolonged than our baseline scenario. The fiscal reserve had reached MOP663.6 billion by end-February, equivalent to about 7.0x 2021 budgeted expenditure,’ the group added.

Fitch also forecasts that the public budget current account will revert to a surplus of 7.7 per cent of GDP in 2021, despite a 38 per cent year-on-year fall in the first three months of this year to some MOP12.7 billion.

Gaming tax revenue plunged by 73.6 per cent in 2020, having also contracted by 50 per cent between January and March this year.

The agency also expects Macau authorities to deepen their cooperation within the Greater Bay Area (GBA) through better infrastructure and financial services connectivity.

‘Macau plans to extend its light rail to the Hengqin border checkpoint by 2024, integrating the territory into the mainland’s high-speed rail network. The authorities also plan to ramp up efforts to develop the financial industry and boost non-gaming collaboration with Hengqin Island,’ Fitch underlined.

However, the agency warned that although gradual integration with mainland China should facilitate some economic diversification and spur employment and growth opportunities., it may also lead to a gradual convergence of governance standards with the ‘lower-rated mainland’.