Macau Business | June 2023
By José I. Duarte | Economist, Macau Business Senior Analyst
The first GDP data of the year confirms what we might expect. Removing the COVID-related barriers allowed the economy to pick up again. At last, the recovery is underway.
The first quarter figures indicate a real homologous growth of about 40 percent. The coming months are likely to provide similarly high numbers. The year 2022 was a terrible one, even worse than 2021. We are starting from a low base; growth percentages will inevitably be high. But we are well below the previous norm, and it will take time to recover the losses of the last three years.
Further, as the economy opens, we will likely benefit from what one might call ‘repressed’ demand. The visitors’ willingness to come to Macau and spend existed but was blunted. The initial stages of the recovery will benefit from an increased impetus, which may decrease over time.
The top questions everybody will be asking anew are how fast the recovery will proceed and how far it will go. To use the cliché of the times (forgive me), what will be the “new normal, and how long will it take to get there?
To attempt to answer the uncertainties about the extent and pace of the recovery, two indicators top the dashboard of observers: the number of visitors and the gambling revenue (nothing new). Both flows of people and money raise interrogations. They are certainly related, but that relationship is weaker and more complex than it is often made.
The answers lie more in what is happening or will be happening beyond the Macau borders, where most of the demand dwells, than in bringing the local supply of services to the pre-existing levels, critical as it is.
The latter alone is a less than trivial matter. Given the pounding in revenue and the labour resource losses suffered by many businesses, time will tell how fast they can, under the new circumstances, restore the earlier quality of services, let alone their extension.
But any calculus or decision requires a careful look at the other side of the equation. The current situation in mainland China is less favourable to Macau’s accounts than before. Most economic indicators – exports, domestic consumption, and investment, are recovering slower than expected; and concerns about the resilience of some critical sectors, such as construction and finance, cannot be dismissed. As the rebound of the Chinese economy appears less vigorous than many hoped or predicted, the challenges to the local economy may become more complex.
How many visitors will become the norm, and what will their spending profiles be? How long will most visitors be willing to stay, and how will they spend locally?
For instance, the rising share of single-day visitors, reestablishing an earlier and fundamental imbalance in the local tourism economy, is showing up in the data. It certainly benefits significant segments of local commerce, but the cost-benefit ratio for the whole economy is, at least, debatable. But longer-staying visitors with higher value-added spending profiles must be enticed with more than what the local economy has been able to provide.
Without the big gamblers, gambling revenue growth will miss its main pre-Covid driver. It is dubious that the so-called mass market segment can take up the slack. Unless new channels to cater to those players or new sources are found, gambling revenue will have difficulty returning to previous heights. Also, the impact of such changes on the public purse and the breadth of the policies open to the authorities must be considered. These issues will define what the new normality will be. It is likely to look different from the old one.
