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Tough times to persist in Macau, Moody’s warns

TAGs: gambling revenues, Leonard Postrado, Macau, moody's investors service

Macau’s struggling gaming market may have bottomed out after posting almost two years of continuous declines in monthly gambling revenues but credit-debt watcher Moody’s Investors Service warns that tough times to persist over the next three years.

Tough times to persist in Macau, Moody’s warnsThe gambling-driven economy of Macau will see a 6 percent contraction year-on-year in 2016 amid falling gaming revenue, according to Moodys. It added that the rate of decline will be carried over in 2017 – albeit at a slower pace of 2.5 percent.

Moody’s also suggests that Macau will see a considerable deceleration from the robust 13.7% annual average GDP growth rate achieved during 2011-2015 period.

“We expect that growth will continue to contract over our rating horizon of the next two to three years, although the pace of decline should slow,” said Moody’s in its annual credit analysis of Macau.

In May, Moody’s stripped off Macau’s Aa3 debt rating with a “negative” outlook due to the uncertainty surrounding Chinese special autonomous region’s growth. Official data shows that Macau’s gross domestic product (GDP) contracted by 13.3 percent year-on-year in real terms in the first quarter of 2016.

The accumulated casino GGR of Macau in the first five months plunged by 11.9 percent to MOP91.91 billion ($11.5 billion) from the prior-year period, according to the official data of the Gaming Inspection and Coordination Bureau. Casino revenue nosedived by 9.6 percent year-on-year in May, marking 24 consecutive months of declines when measured in year-on-year terms.

“The economic shock to the gaming sector stemming from a decline in tourist arrivals from mainland China has resulted in a sharp drop in the [Macau] SAR’s headline GDP,” Moody’s explained. “Our forecasts of a slowdown in China could weigh on tourist inflows and spending in the near term. This situation, coupled with a maturing gaming industry and the ongoing anti-graft campaign will leave gaming revenues under pressure.”

Despite seeing negative growth rates, Moody’s noted that Macau’s fiscal position – driven by revenues from the gaming sector amid limited cutbacks to expenditure – remains strong and will continue to post surpluses until 2017

The Macau government surplus dropped by 35.8 percent year-on-year in the first five months of 2016 to MOP16.36 billion, official data showed.

“Macau’s fiscal reserve buffer is ample, despite surpluses having dwindled considerably over the last two years. The absence of public debt allowed the SAR to accumulate total reserves amounting to MOP345.1 billion (US$43.2 billion) or 94 percent of GDP at end-2015,” the credit debt watcher said. “Our expectation of a decrease in gaming revenues in 2016 and 2017 suggests that Macao’s economic, fiscal and external metrics will likely weaken considerably from prior robust trends.”

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