OPINION – Early signs

Macau Business | April 2021

The year started with high expectations that our lives might soon begin to return to something closer to what we could call normalcy. In the last months of 2020, there were some improvements in the economic front (and other fronts), but we will not venture beyond.) But the economic activity seems to be picking up at a slower rate than desired and hoped, and the occasional upswings have yet to become sustained.

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

How long will this situation last and how deep will the wounds inflicted depend on how fast the usual flows of people, money, and goods will be restored.  That means, essentially and more urgently, restoring the three markets’ connections whence about 90 percent of our ‘customers’ come: mainland China, Hong Kong, and Taiwan.

The much hope the improvement at the end of last year created was a bit toned down in these first months. The mainland flows improved, but not as fast as might be needed, and possibly the pandemic’s evolution might allow. Other hindering factors seem to be at play.

And Hong Kong and Taiwan are virtually closed, without any firm indication about a possible time frame for a back-to-the-normal process to start. These facts have softened earlier optimism.

On the other hand, on a closer time horizon, expectations about the government’s stimulus are also high. However, the overall budget shrank, even as the financial reserve was called into action for the first time. That is not without implications on the overall economic dynamics in these testing times. Moreover, the budgeted income stemming from casinos’ revenues suggests the government was expecting the gambling sector would operate this year at around 40 percent of its actual values in 2019. Even that forecast may now start to appear in doubt.

On a more positive note, there is a government commitment to support families’ consumption and increase public investment.

New arrangements to stimulate private consumption were announced recently. Their somewhat complicated configuration and operation raised several questions, if not opposition, from several quarters. The government promised to review and simplify them. We must wait for the revised arrangement to assess its likely impact better.

On the investment side, meaningful results usually arrive in the longer term. Indeed, maintenance and small improvement works can keep a section of the building sector and its labor force occupied. But no significant stimulus will come from that; it is palliative at best. Big investment projects take time to start, to complete – and to produce effects. Indeed, they may be essential for future growth but do not solve short-term problems. Moreover, they may have more immediate and significant growth effects outside the local economy.

The budget execution so far also calls for some measure of caution. Based on the data for two whole months available at the time of writing, we can say it is not as determined as one might hope. The income from direct and indirect taxes mostly follows the usual collection pattern, but the budgeted figures fall noticeably below those seen in the previous years.

Two of the touchstones for budget execution – income from the gambling concessions and the public investment budget (PIDDA, in its Portuguese acronym) – are yet to provide some respite. They are noticeably lower than in other years, and the actual execution for both, in relative terms, is weaker than what was the case last year at the same time. In sum, the panorama is still greyish, more than most of us would aspire. The general orders still seem to be for most businesses to hold tight. Let’s up that for a rising number of them that is not more than they can afford.