Macau economy set to contract 24% in 2020

Fitch Ratings revealed a report where explains the dependence on gaming revenue will drive the city to a fall in economy.

Macau.- Fitch Ratings has predicted a 24 per cent decline in the Macau economy, based on an estimated gross gaming revenue decrease of 40 per cent for the year due to the Coronavirus crisis.

The rating agency noted that the dependence on gaming tourism exposed the local economy to substantial disruptions from lockdown measures imposed to contain the Coronavirus pandemic.

“Macau’s overwhelming dependence on gaming tourism constitutes one of its principal rating constraints. Macau is one of the world’s biggest gaming tourism hubs and Fitch estimates the gaming industry represents 51 per cent of aggregate activity, 22 per cent of employment, and more than 80 per cent of fiscal revenue,” the agency explained.

Fitch also holds a negative sector outlook on the local banking system, believing that the global pandemic will result in pressure on banks’ asset quality and profitability.

“The mainland China exposure (MCE) of Macau banks remains the single biggest financial-sector risk. The agency estimates Macau’s MCE rose to 41 per cent of system assets by end-1H19, the highest in the Asia-Pacific region, and double its size at end-2015.

“A low impaired-loan ratio of less than 0.2 per cent with about 50 per cent of exposures backed by parental guarantees or guarantees from other mainland banks help mitigate the potential challenges,” Fitch added.

However, the agency said that Macau is well-placed to survive an economic downturn:

“Public finances remain robust, despite ongoing economic disruptions. The authorities recently unveiled a package of economic relief measures amounting to about MOP52.6billion, or 15.6 per cent of projected 2020 GDP, to cushion the economic impact of the pandemic.”

Fitch estimates this will result in the territory reporting its first budget deficit since the 1999 handover, at about 7 per cent of GDP this year, and forecasted that budget will revert to a surplus in 2021.