Financial regulator cuts Macau growth forecast

‘Macau’s monetary and financial system remained sound and healthy’, the Monetary Authority wrote, but ‘there exist early warning signs’

The local economy will grow “at a high-single-digit rate” during the first half of this year, much slower than the government’s expectations, the financial regulator wrote on its latest report.
According to the Monetary and Financial Stability Review released last week, Macau’s wealth creation – known as Gross Domestic Product (GDP) – has grown by an estimated 20 percent last year.
This figure already represents a significant drop from the first three quarters of 2011, during which local GDP grew by 21.8 percent year-on-year in real terms – down from the 26.2 percent registered in 2010.
“Macau’s monetary and financial system remained sound and healthy,” the Monetary Authority (AMCM) wrote, but “there exist early warning signs”. And the regulator expects economic growth to slow down even further during the first half of this year.
The local banking sector’s financial stability index has decreased consecutively since mid-2010, the report warns, due to “significant exposure to certain countries that are suffering from major economic and financial difficulties”.
“In view of its export-oriented nature, the Macau economy will inevitably be influenced by the external environment, which will hinge on how the euro-area sovereign-debt crisis evolves,” AMCM conceded.
Mainland China – the biggest market for the major local industry, gaming – could suffer from the drop in external demand caused by the flagging recovery in advanced economies.
“As a result, the downside risk to the Macao economy in the coming year cannot be completely ruled out despite the SAR strong economic fundamentals,” the report emphasised.
Trade exports “are expected to lock in a downtrend” somewhat balanced by “increased reliance on intraregional trade of non-textile products”. On the other hand, wealth created by tourism is “expected to experience softer growth”.

The government will still finish 2012 with an overall surplus estimated at MOP 38 billion, the regulator predicted

Strong investment

The “high-single-digit rate” growth forecast by AMCM is far more pessimistic than the “low double-digit” estimate made by secretary for Economy and Finance, Francis Tam Pak Yuen, during his 2012 Policy Address last November.
And earlier this month the Economist Intelligence Unit predicted that Macau would be the world’s fastest growing economy in 2012 with a 15 percent forecast.
Despite the sharp slowdown, AMCM is still confident the territory will have a positive year, starting with an overall balance of payments surplus. In addition “domestic demand would provide further impetus to economic growth”.
Investment will keep expanding, the report adds, as the government juggles the construction of 19,000 public housing units, the Light Rapid Transit system, the Zhuhai-Hong Kong-Macau Bridge and the development of Hengqin Island.
Even with public spending soaring “at a relatively fast pace” and gaming revenue facing “a milder growth,” the government will still finish 2012 with an overall surplus estimated at MOP 38 billion, the regulator predicted.

‘Inflation in Macau is expected to hover around four to six percent in the first half of 2012 after peaking out in the last few months’

The private sector will do its share with “ongoing tourism-related construction projects at the Cotai Strip”.
“Favourable job prospects, higher household income and the influx of people working in the SAR would all spur domestic consumption,” the report adds.
The demand for labour in the services and construction sectors is likely to remain strong and push the number of non-resident workers “to exceed 100,000 in the near future”. But AMCM expects the jobless rate to continue around 2.3 percent, a level it reached in the three months ended November.

More non-residents

Non-resident workers have topped 94,000 at the end of December, for the first time in three years, the Human Resources Office announced last week. Imported labour has increased every month since May 2010 when it was down at less than 72,100.
This growth was mostly due to a hiring boom in the construction industry, which reached 11,758 external employees, up by 453 from November. In addition hotels and restaurants hired a further 326 non-resident workers to reach a total of 27,106.

The number of non-resident workers is likely ‘to exceed 100,000 in the near future’

Hotels and restaurants remain the biggest employers of outside staff, followed by domestic workers (16,256, up by 144). Meanwhile the number of non-resident workers at the gaming and entertainment industry dropped a second consecutive month to less than 11,400.
The majority of the new non-resident workers hired last month came from mainland China (891), taking the total to just short of 55,400. Imported labour from across the border rose non-stop for the whole of 2011, with almost 13,500 mainland Chinese hired in this period alone.
On the other hand, inflation will remain “a concern of policymakers and the general public in the year to come,” AMCM warned. Even though inflation in mainland China is stabilised, “sustained economic growth under tight supply constraints would continue to exert upward pressure on domestic costs”.
“Inflation in Macau is expected to hover around four to six percent in the first half of 2012 after peaking out in the last few months,” the regulator wrote. The average inflation for the whole of last year stood at 5.8 percent.

V.Q.