Tourists pose for photographs in front of the Ruins of St. Paul's Cathedral in Macau, China, on Wednesday, May 20, 2015. Macau's Chief Executive Fernando Chui pledged a five-year plan to make it less dependent on casinos by diversifying the economy and transform itself into a global tourism center. Photographer: Billy H.C. Kwok/Bloomberg

OPINION – A long and winding road

Macau Business – October 2020

There are great expectations about the coming, at the time of writing, golden week. In both the short- and long-term, we should prepare for less and slower effects than everyone would want. I’d be happy to be wrong, yet one should be careful not to raise expectations to the point where disappointment becomes unavoidable. Those reading this column will already know better than me how the week itself fared.

By José I. Duarte | Economist, Macau Business Senior Analyst

Indeed, people expect it to provide a much needed, if momentary, jolt to the local economy. In particular, the accommodation, food, and retail businesses are eagerly looking for it. Given the current status of the economy and tourism flows, the figures can only be better, much better; if they can be as large as many hope is another issue altogether. 

Many businesses were pounded. Operations have closed, temporarily or intermittently, when not definitely. Staff was fired; or imposed mandatory holidays, reduced pay, part-time schedules, or all of them. Work routines broke down, the competence pool diminished, and motivation possibly is not at its highest. It is not obvious many companies could nowadays meet ‘regular’ levels of demand. 

The sector’s demand will be even more biased than usual. With foreigners banned from entry in the region and no plans in sight to open other travel channels to the world, we depend exclusively on the mainland market. Visas and flows were suspended for months. The issuance of individual vias re-started only a few days ago. We’ll see how demand evolves and how fast the administrative procedures are fulfilled. 

Further, the economic and, more broadly, the pandemic’s social toll will take some time to become apparent. No sector was immune. Disposable income, comfort and ease of travel, and the destination’s attractiveness are all likely to be lesser than before. Wariness about possible but unforeseeable outbreaks of the disease and authorities’ reactions will only compound such fragilities. Leisure and, especially, travel to external jurisdictions will be counted among the first victims.  

Then, will the golden week pull help the economy to gain momentum, or the forces of inertia prove more potent than expected? Again, caution is advisable.

All the sectors that rely on visitors’ flows came to a virtual standstill. One thing is to maintain ongoing and established operations flowing; another one is to re-start them once they stopped or, in cases, completely broke down. The routines, expectations, and material conditions have changed. Only time will tell how this crisis compromised networks and resources or how long it will take to bring them back to pre-existing operation levels and efficiency.

The local labor market is feeling the strain. Figures can be misleading.  Macau holds the ‘convenience’ of removing nonresident workers from the labor force when the times get tougher. Otherwise, the unemployment rate would fast become much higher than it shows. Some of the measures taken, short of dismissal, buffer the local unemployment rate temporarily – but only temporarily. 

Worse, the local employment pool’s strength, with its known quantity and skill limitations, is historically closely linked to the rise in nonresident’s inflows. The current movement is still in the opposite direction. If the trend can be reversed quickly and effectively are open questions.

All these trends imply also reduced domestic consumption, which public support to consumption can only marginally mitigate. Moreover, in uncertain times people will save more, adding downward pressure on private internal demand and squeezing businesses further.

Gold is unlikely to rush in at the end of the week, and the path to recovery requires fewer unknowns and stronger confidence in the direction and purpose of the journey.