An absence of rapid progress towards economic diversification means Macau’s Gross Domestic Product (GDP) will not return to pre-pandemic levels until 2025 and leaves the economy overly vulnerable to further shocks, according to a new report from the International Monetary Fund.
The Staff Report, prepared for the Executive Board of the IMF following discussions with the Macau SAR, was published this week and outlines the city’s expected recovery trajectory.
Having seen GDP decline by 54% in 2020 before expanding by 18% last year, the IMF expects expansion by a further 15.5% in 2022 and 23% in 2023 before converging to its long-term potential of around 3.5% over the medium term. The recovery, it said, will be driven by the gradual return of foreign tourists and the recovery of domestic demand.
However, the IMF also noted that “the collapse of [Macau’s] economic activity [in 2020], mostly on account of weak services exports, highlighted [the] Macau SAR’s overreliance on the gaming industry.”
Warning that Macau remained vulnerable to a resurgence of the COVID-19 pandemic, which would undermine the medium‑term viability of the gaming sector, the IMF said a “multiprong package of structural reforms is needed to bridge the gap in skill composition and overcome barriers to economic diversification. Advancing the government’s diversification agenda will require investments in skill building and infrastructure, including for digital infrastructure, enhancing the effectiveness of public institutions, and improving business environment. The integration with the GBA provides opportunities for [the Macau] SAR to access a larger pool of skilled labor and offshore some economic activities.
“The cooperation between different government agencies responsible for the diversification agenda should be strengthened to enhance the effectiveness of the government’s diversification efforts.”
The need to diversify is further highlighted, according to the IMF, by uncertainty around proposed amendments to Macau’s gaming law, which in combination with China’s crackdown on cross-border gambling and subsequent collapse of the junket industry, “clouds the outlook of the gaming sector”.
“Macau’s recovery is expected to continue going forward, but it will take time before the economy fully regains pandemic-induced losses,” it said.
“The gradual return of foreign tourists and the strengthening of domestic demand will support the near-term recovery, while increasing investment linked to the issuance of new gaming concessions, and further integration with the GBA will boost medium-term growth.
“However, given the depth of the economic losses during the pandemic, the level of GDP is expected to surpass its pre-crisis level only in 2025. In the absence of rapid progress towards economic diversification, the current account balance is set to return to pre-pandemic levels as tourists return to [the] Macau SAR.”
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