Moodys tipping full Macau recovery by 2024 but economic diversification some time off

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Ratings Agency Moodys Investors Service says it expects Macau to achieve full economic recovery from the COVID-19 pandemic by 2024, with tourism operators seeing a return to pre-pandemic levels as early as 2023.

The estimate formed part of Moodys latest Macau update in which it affirmed the SARs local and foreign currency issuer rating at Aa3 and maintained a stable outlook.

Despite describing Macaus economy as the worst-hit by the coronavirus globally, with real GDP falling more than 56% year-on-year in 2020, Moodys also noted that it was better placed than most to survive the fallout due to its excess of fiscal reserves around MOP$616 billion (US$77 billion) at December 2020 as a result of its long-booming gaming industry.

Macau also presents a strong recovery trajectory.

The stable outlook reflects balanced credit risks, including Moodys view that economic activity will likely be restored to pre-pandemic levels by 2024, spurred by a recovery in the gaming sector, it said.

Under Moodys assumptions, a full recovery in tourist arrivals and therefore, gaming revenues will not occur until early 2023. These assumptions are underpinned tourist arrivals gradually recovering in the second half of this year, such that total arrivals will still remain about 60% below pre-coronavirus levels in 2021, before improving to record a 25% shortfall in 2022 and an increase relative to pre-pandemic levels only in 2023.

The ensuing economic upturn is likely to track the recovery in tourist arrivals, since relaxations of travel restrictions with China will result in an upturn in gaming revenues as pent-up demand returns.

It will likely take longer, however, for Macau to realize any results from its efforts to diversify its economy and lessen its reliance on gaming.

Such efforts have followed a three-pronged strategy of moving from high-end (VIP) gaming to mass-market gaming, from gaming tourism to nongaming tourism, and on improving the growth of the financial sector, Moodys said.

Prior to the pandemic, these efforts were bearing fruit. However, the magnitude and global nature of the coronavirus shock has made it difficult for Macau to prove the benefits of still-nascent economic diversification efforts.

Even as Macao continues to press ahead with its economic diversification plans, Moodys does not expect to see a material shift in the composition of its economy over the course of the rating horizon.

Economic diversification will involve not just regulating the scale of the gaming industry itself; but also expanding into other industries. While these efforts are underway particularly into the financial sector scope of rapid development is limited, given competition from other cities in the region. Moreover, there remains a higher likelihood that any diversification will occur within, rather than outside of, the gaming and tourism sectors, thus leaving broader exposure largely unchanged.