Why Macau's real economy is yet to be hit by a massive slump in nominal GDP
By B.L. | NEW YORK
WITH unemployment at 25%, government debt at more than 170% of GDP, and the country’s politics in turmoil, the 26% peak-to-trough decline in output brought about by the euro-zone crisis has been highly traumatic for Greece. Yet the government of Macau, the one-time Portuguese colony now the world’s gambling capital, just released figures showing that the territory’s GDP fell by 26.4% year-on-year in the second quarter. But at first blush Macau’s real economy appears to be doing rather fine. In spite of the steep fall in GDP, unemployment remained at its full employment level of 1.8%, private consumption grew and the territory’s government ran a budget surplus. Is the Macanese economy also about to run off a cliff?
Macau’s casinos are betting that a sharp downturn will not lastIt turns out that not all GDP is created equal. Macau, which in 2014 boasted GDP per head of $89,000, owes its prosperity to its casinos, which alone account for almost half of total output. The Chinese government’s anti-corruption campaign has caused gaming revenues to decline by 40% and other tourism revenues to fall by 21.5%. With gaming and tourism accounting for such a large share of total output, these declines have been enough to create the massive fall in headline GDP. But for now, the impact of this has largely shown up on the books of Macau’s casino owners, away from the city. Profits have plummeted for Las Vegas casino magnates and Hong Kong tycoons who run Macau’s baccarat tables. What matters most for the 630,000 people who live in Macau is that the local job market is still strong. Casinos, though struggling, have not yet cut many staff. Investment in other activities is in fact growing: difficulties in the gaming rooms are forcing casinos to try and diversify. A giant Ferris wheel and a replica of the Eiffel Tower are among the attractions currently being built. However, if this diversification drive fails to attract tourists, the Macanese will eventually feel a pinch, especially if China’s anti-graft campaign rolls on. There are already some signs of this. Though still in the black, the government’s surplus slipped to its lowest level since 2011. And the 2% year-on-year growth in private consumption was at its slowest in nearly six years. Macau’s casinos have already fallen on hard times. For ordinary Macanese, the streak of good luck may also be starting to run out.
