Macau Monetary Authority says VIP decline points to stable outlook

Monday 26th of January 2015

In its latest assessment, the Macau Monetary Authority says it is upbeat over the outlook for the tourism and gaming sectors, with the rise of the mass gaming market a positive feature towards longer term economic stability.

The economy, the authority said, was set to grow at a “low-single-digit” rate after a zero or slightly negative growth rate in 2014, based on a second quarter return to modest revival in the gaming sector.

“Looking forward, the mass market is likely to surpass the VIP market in terms of its share in total gross gaming receipts,” the report said.

This development of mass-market business is set to act as a buffer against the declining, highly volatile VIP business and have a positive impact on Macau’s macroeconomic stability.

But CLSA regional head of consumer and gaming research Aaron Fischer is predicting that the slump in Macau’s gross gaming revenue (GGR) will continue at least into the third quarter of this year.

“For the first half of this year some very weak data is coming in and we’re forecasting gross gaming revenue to be down 29 percent for the first quarter,” Fischer said at a press conference. “For the second quarter we’re expecting a 20 percent year-on-year decline.”

He expects revenue to perk up only when the Studio City casino-resort and the second phase of the Galaxy Macau casino-resort open later this year.

But the Monetary and Financial Stability Review for January, said private-sector construction investment linked to tourism facilities is also seen as a driver of growth while consumption would underpin the overall economy.

Visitor arrivals for 2014 were at more than 30 million and set to remain strong, enabling “vertical diversification within the tourism sector” for future development as well as economic sustainability. This, the report said, could be achieved in the short to medium term as the economy enters into a “new phase” of slower growth.

The strong visitor base is also tied to that of the numbers of growing middle-class households as an engine of visitor growth, especially from Mainland China, which accounts for over 60 percent of arrivals.

“The strong visitor base serves as a key factor for supporting activities of the small open economy of Macau and the (Special Administrative Area) SAR Government’s priority policy to promote economic diversification and develop non-gaming tourism activities,” the authority said.

The report also pointed to strong visitor growth from non-Chinese sources, including South Korea, Japan and Singapore. These are expected to lead to new local business opportunities.

Other features include the development of new resort projects with substantial non-gaming elements, such as private sector resort-orientated projects, mainly in Cotai.

The mass-market business within the gaming sector has also been growing steadily, outperforming the VIP business, supporting a shift to vertical diversification. The mass market clientele is largely composed of middle income customers, with more stable income sources and predictable consumption behaviour.

The deepening focus on entertainment, convention and exhibition, and shopping facilities would then in turn be a key driver for developing Macau SAR as a key centre of tourism and leisure.

At the same time, non-gaming development will provide a more stable revenue source, and as a result see a gradual reduction on the reliance on gaming for casino operators and the Macau economy.