After Two Consecutive Quarters of Decline, Macau's Cash Cow has Slowed its RollPublished September 13, 2019 by Lee R
Investment and marketing in Macau must continue effectively in order to keep pace with new competing jurisdictions.
Unable to absorb two consecutive quarters of decline, China's key island gambling hub Macau has fallen into a technical recession.
GDP declines of 1.8% in Q2 and 3.2% in Q1 are the culprits. While the decline decreased in Q2, less construction projects in the quarter were identified as the cause of reduced gross capital formation, reflecting a temporary or long-lasting stall nonetheless.
Other slowage across Macau's economic performance included a 6.1% year-to-year decline in domestic demand, accentuated by a 25% drop in gross fixed capital formation. The ugly decline was attributed primarily to a 30.1% annual decrease in construction investment, even as equipment investment grew 9.1%.
In Macau, private consumption expenditure and government final consumption expenditure rose respectively by 2.2% and 5.7%, offsetting part of the economic downturn but also indicating a need for more development to maintain effective pricing, especially with implicit deflator GDP growth measuring a 2.4% annual rate of increase for prices in Q2 in Macau.
As far as revenues, Macau’s Gaming Inspection and Coordination Bureau indicates a drop in gross revenue from different gaming activities from MOP76.37bn (£7.70bn/€8.52bn/$9.46bn) to MOP73.56bn sequentially across quarters for Q2.
Bring Back Junkets
VIP junkets and gamblers remain the source of the most immediate and direct economic boost. This would require a change in heart on the part of the Chinese government, which has been discouraging VIP junkets from the mainland for the better part of a year.
More Competition Now
Attracting and retaining VIP gamblers also requires new solutions: after years of enjoying the reputation of an automatic high end destination for regional and international gamblers, a proliferation of state-of-the-art casinos in neighbouring countries gives Macau more competition than ever before.
A Union Gaming study estimates Macau lost $1.4bn of VIP gross gaming revenue (GGR) last year to Cambodia, the Philippines, South Korea and Vietnam, with the total expected to rise to $2.6bn this year.
Turning it Around
As the regional jurisdiction most economically reliant on gambling, Macau will likely have to return to more favorable effective tax rates on VIP GGR to keep up with more favorable neighbour rates, and effectively market new IR construction ventures in order to keep pace and not fall deeper into recession.