OPINION – Looking forward

The second-quarter figures confirm the trend: in the first half of the year, GDP dropped to just over 40 percent of the value recorded in the same period last year. The beginning of the year was still a decent one concerning tourism and gambling revenues, which softened the first quarter’s blow. Had the COVID-19 measures been taken earlier, the year results by now might be even worse. Still, that is the prospect for the coming months if a turnaround does not happen soon enough. 

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

The government support measures certainly helped, but their impact is inevitably limited. Let us start by assuming the brave and unlikely hypothesis that all the government’s money translated into additional expenditure, that would not have happened otherwise. Supposing all the consumption cards available were fully utilized, their cumulative amount in the semester would represent still less than 3 percent of total private consumption last year. 

Under the same brave assumption, if we add the increased amounts available through the consumption cards until the end of the year, the impact will still be around that figure. Only time will tell how much of the additional income provided becomes immediate consumption or, alternatively, raises current savings, to be spent inside or outside the economy, now or later.

Private investment provides another tale of decline. In 2019, it went down by 20 percent; the first semester was down by a quarter. Indeed, we are going through times of compounded uncertainty – about the reopening of the borders, the rebound of the Chinese economy, the pandemic evolution, the new gambling concessions. If anything, the recent drop is a continuation of a trend that the current state of affairs may only intensify.

In sum, neither private consumption nor investment will come to rescue until our economic driver restarts in any meaningful way, and the levels of uncertainty are significantly reduced. 

As for the government, its role is indeed crucial in such conditions, but not all-powerful.  As seen earlier, the stimulus to consumption can only go so far. It is less clear how strong was the help provided directly to companies, but the mechanisms announced may be less accessible or significant than would seem earlier. Regardless, without a rebound in demand, that support is but a momentary palliative.

Public investment has increased by about a third, compared to the last year. But then, the public investment represents a minor fraction of GDP, and its impact is often delayed or trickles away through both workers’ remits and companies’ imports and profits.

There are significant reserves that may provide some welcome, albeit temporary relief. Anyway, their more extended usage would face political obstacles and budgetary and execution constraints.

All that brings us back to the core of the economy – casinos, and tourism – and highlights how crucial it is to manage the economy’s reopening. It is becoming increasingly likely that there will be no magic bullet that will solve the health crisis. Even if there were grounds for such unbound optimist, it would be wise to prepare for less than ideal outcomes. 

Further to the deterioration of economic conditions, the continuation of the current approach may be planting the seeds of civil unrest in many world regions. It is already compounding the health woes for many, as resources mobilized to the pandemic are visibly worsening the care provided everywhere else. It is possibly high time to think about how to live with it, instead of betting on its passing. If the latter comes, so much the better. If not, we’ll be in better shape to face the tides.