The IMF surprised everything and everyone by updating its economic forecast for Macao by + 4.3% to -1.3% within a few months. IMF Mission Chief for MSAR tells Macau Business that investment will recover once the uncertainty created by the scheduled expiration of gaming licenses in 2022 is resolved and that a top policy priority for Macau SAR must be to boost public investment.
MB Jan 2020 Special Report | IMF: from glory to recession
Is it normal for an IMF forecast to go from +4.3% to -1.3% in a few months?
Mariana Colacelli – IMF staff update global forecasts on a continuous basis. Detailed IMF forecasts are published at least twice a year, with the April and October WEO publications. Additional updates may be published, including to reflect updated forecast for a given country with the findings of its IMF Article IV consultation. Each update takes into account latest data and most recent developments, reflecting the information available before the vintage is published. In cases when circumstances change significantly, as reflected by latest data releases in Macau SAR, the forecasts may show large revisions.
To be a little bit more specific: Clearly, economic circumstance have changed since our latest published projections for Macau in the 2019 WEO October. When we update our forecast in the April 2020 WEO, we will take into account the most recent data releases, including the very low 2019 GDP growth outturns for the third quarter and other high-frequency indicators that will be available by that time.
What are the main factors contributing to this scenario?
M.C. – In the October WEO, we have downgraded Macau SAR’s growth projections relative to the April 2019 WEO publication. The main reason for the downgrade is the recent data releases, with negative real growth rates in the first and second quarter of the year (at -3.2 and -1.8 percent, respectively). Investment and exports—driven mainly by gaming tourism—have contributed the most to this contraction. We project a contraction for 2019, as gaming revenue is negatively affected by China’s slower growth, among other factors. In addition, the uncertainty created by the scheduled expiration of gaming licenses in 2022 will have to resolve for investment to recover.
IMF anticipates some years of recession for Macau, but tourist forecast for this year is close to 40 million (up 5%). Shouldn’t these tourists boost the local economy?
IMF forecasts weak growth in the next couple years, with a recovery over the medium term. While we have recently observed reduced external demand from high-spending (VIP) visitors, progress with diversification towards mass-gaming and nongaming tourism, are expected to support growth in the medium term. The recently developed reclaimed land in Cotai and the newly opened Hong Kong–Zhuhai–Macau Bridge are supporting mass-gaming and nongaming tourism.
There will be new gambling concessions but there will certainly be no major investments (new casinos) for lack of land. Will lack of private investment contribute to this recession?
M.C. – The observed contraction in investment, together with a contraction in exports, is indeed a major driver of the 2019 recession. We project that investment will recover once the uncertainty created by the scheduled expiration of gaming licenses in 2022 is resolved.
How important does the IMF attach to the need for public investment?
M. C. – We assess that a top policy priority for Macau SAR is to boost public investment in priority infrastructure and targeted social spending—including education spending to enhance human capital. Infrastructure plans should be advanced to ease supply-side bottlenecks and support a higher number of tourists under a mass-gaming and non-gaming growth model. These efforts would support the diversification agenda and foster inclusion.
Considering GDP per capita, measured in PPP, Macau was set to be, by IMF, by 2020, the richest place in the world. The latest forecast completely takes this scenario away and puts Macau away from places considered by the IMF to be the richest. When do you expect Macau to converge again?
M. C. – Given the dynamic nature of country team’s forecasts, it is hard to predict such cross-country events. Moreover, the present heightened global economic uncertainty adds an extra layer of risk to our forecasts. We project that Macau SAR will return to positive growth in the next couple of years, with diversification progress towards mass-gaming and nongaming tourism supporting growth in the medium term.