2015 macroeconomic forecast for Macao by UM’s Department of Economics

The University of Macau’s (UM) Department of Economics released its Macroeconomic Forecast for Macao 2015 today. Macao’s economy grew moderately in the first half but began to contract in the third quarter of 2014. The contraction became severe in the fourth quarter. During that period, Macao’s real GDP dropped to MOP 87.7 billion, a year-on-year decline of 17.2 per cent (Figures 1 and 2). Based on the forecast, economic adjustment will continue in 2015.

The Economy in 2014

The Macroeconometric Structural Model of Macao was developed by Nobel laureate Sir James Mirrlees and Ho Wai Hung, Liu Chun Wah, Chan Chi Shing, and Kwan Fung from UM’s Department of Economics. Below is the latest data on the economic situation in the various sectors in Macao:

External demand for services was mainly driven by mainland China. With economic slowdown and the anti-graft campaign, Chinese visitors’ spending in Macao, particularly spending on gaming activities, was severely hit. In the fourth quarter of 2014, exports of services amounted to MOP 81.4 billion, a year-on-year decline of 26.0 per cent. Meanwhile, exports of services in gaming, the largest portion of the exports of services, were MOP 65.8 billion, a year-on-year decline of 28.9 per cent.

In the first quarter of 2015, the nominal gross gaming revenue was MOP 64.8 billion, a year-on-year decline of 36.6 per cent, or a quarter-on-quarter decline of 14.3 per cent.

In February 2015, total visitor arrivals saw a year-on-year increase of 4.5 per cent to 2.68 million, with 1.90 million arrivals from mainland China, a year-on-year increase of 10.7 per cent; and 0.52 million arrivals from Hong Kong, a year-on-year decline of 5.2 per cent.

In the fourth quarter of 2014, exports of goods jumped to MOP 5.1 billion, a year-on-year increase of 42.7 per cent. Export of textile products and non-textile goods saw year-on-year increases of 8.7 per cent and 12.8 per cent respectively.

In the fourth quarter of 2014, imports of goods amounted to MOP 33.7 billion, a year-on-year increase of 15.3 per cent. Due to the declining demand for gaming services, imports of services saw a year-on-year decrease of 26.6 per cent to MOP 18.1 billion.

On the front of the imports of goods, consumer goods saw a moderate year-on-year increase of 1.8 per cent in the fourth quarter of 2014 upon the growth in consumer spending. Meanwhile, raw materials and semi-manufactures recorded a year-on-year growth of 22.5 per cent with the significant growth in exports of goods. Capital goods saw a year-on-year increase of 40.7 per cent with an upsurge in equipment investment.

Local spending continued to grow steadily amid high employment earnings. Private consumption expenditure in the fourth quarter of 2014 amounted to MOP 20.2 billion, a year-on-year increase of 4.6 per cent. Household final consumption expenditure in the domestic market and abroad saw year-on-year increases of 4.3 per cent and 6.6 per cent respectively.

Private gross fixed capital formation saw a drastic year-on-year increase of 33.7 per cent in the fourth quarter of 2014 to MOP 17.8 billion. Meanwhile, government gross fixed capital formation grew steadily at a year-on-year rate of 7.2 per cent. Total gross fixed capital formation increased by 27.7 per cent to MOP 22.4 billion. Private construction investment and private equipment investment saw year-on-year increases of 32.7 per cent and 42.7 per cent respectively. 

Inflation rate stayed high amid strong demand from local residents. The Composite Consumer Price Index in February 2015 saw a year-on-year increase of 5.3 per cent. The two largest components of the Composite Consumer Price Index, namely food and non-alcoholic beverages, and housing and fuel, saw year-on-year increases of 4.8 per cent and 10.7 per cent respectively (Figure 17). For the aggregate economy, in tandem with the high growth rate in consumer prices, the GDP deflator saw a year-on-year increase of 7.9 per cent in the fourth quarter of 2014.

Labour market continued to be tight, with unemployment rate staying at a low level. Unemployment rate in the fourth quarter of 2014 was 1.7 per cent, down 0.1 percentage point from the fourth quarter of 2013. Excluding non-resident workers, unemployment rate among local residents was 2.4 per cent, down 0.1 percentage points from the fourth quarter of 2013.

The total employment and employment for local residents were 280.5 thousand and 398.6 thousand in the fourth quarter of 2014, year-on-year increases of 7.6 per cent and 3.3 per cent respectively. By industry, employment in wholesales & retails was 44.6 thousand, a year-on-year increase of 5.4 per cent amid the increase in local spending; and employment in hotels & restaurants was 56.3 thousand, a year-on-year increase of 5.0 per cent. Employment in construction was 59.0 thousand, a year-on-year increase of 45.7 per cent along with the expansion in investment in building and construction. Employment in the gaming industry was 87.0 thousand, a year-on-year increase of 0.5 per cent amid the slowdown in the gaming industry.

Median monthly employment earnings were about MOP 14,000 in the fourth quarter of 2014, a year-on-year increase of 13.8 per cent. As for the gaming sector which accounted for the largest share of the employed population, median monthly employment earnings were about MOP 17,000, a year-on-year increase of 6.3 per cent. The median monthly employment earnings for the other major industries such as wholesales & retails were about MOP 10,800, a year-on-year increase of 8.0 per cent while the median monthly employment earnings for hotels & restaurants were about MOP 9,800, a year-on-year increase of 15.3 per cent.

Macroeconomic Forecast for 2015

According to the IMF forecasts in April 2015, global growth will moderate to about 3.5 per cent in 2015. US GDP is expected to expand faster at a rate of 3.1 per cent and the Euro Area is likely to grow slightly at 1.5 per cent. For mainland China, the GDP growth rate has slowed down to 7.4 per cent in 2014 and 7.0 per cent in the first quarter of 2015. This will affect Hong Kong, another major market of Macao’s service exports, and cause it to have a more measurable growth. It grew by 2.3 per cent in 2014. The US Fed may begin to increase its interest rate in 2015. The European Central Bank began its Quantitative Easing to mitigate the possibility of recession and deflation in the eurozone. Mainland China’s GDP is expected to grow at a slower pace in 2015 amid the central government’s attempt to reform the economic structure in mainland China.

Macao’s gaming revenue was hit by the central government’s anti-graft campaign. The negative effect is expected to continue in 2015. The opening of new casinos and hotels in the second half of the year should ease the decline. The exports of services are expected to decrease by 22.8 per cent in 2015. Exports of goods continued to rebound in 2014 and are expected to grow by 13.2 per cent in 2015. Concomitant with the steady growth in local consumption and investment, imports of goods are expected to grow by 14.4 per cent in 2015. Amid the decline in exports of services, the imports of services will contract. The growth rates of imports of services are expected to decline by 26.3 per cent in 2015.

In terms of domestic demand, private consumption spending grew steadily. It is expected to grow at 4.9 per cent in 2015. Private investment in casinos and hotels increased vigorously in 2014 and is expected to continue in 2015. Total investment is expected to grow at 25.5 per cent in 2015.

Inflation, as measured by the change in the Composite Consumer Price Index, is expected to be 5.3 per cent in 2015 amid demand from local residents. It is expected to be 5.3 per cent in 2015. For the aggregate economy, the GDP price deflator is forecast to increase by 7.3 per cent in 2015.

The labour market may loosen in 2015. Unemployment rate is forecast to be 1.9 per cent in 2015. Unemployment rate among local residents is expected to be 2.6 per cent in 2015. Median monthly employment earnings are forecast to rise by 5.9 per cent in 2015.

If the gross gaming revenue continues at MOP 60 billion per quarter, Macao’s GDP is expected to decline at a rate of 14.7 per cent, ranging from a pessimistic estimate of 20.4 per cent to an optimistic estimate of 9.4 per cent in 2015, according to the Macroeconometric Structural Model of Macao. Data and our forecast indicate the possibility of continuous adjustment of Macao’s growth in 2015. Given that the gross gaming revenue is greatly influenced by government policies and is subject to adjustment throughout the year, as reflected by short-term fluctuation, we will update the forecast to reflect the possible adjustments.

About the Macroeconometric Structural Model of Macao

The Macroeconometric Structural Model of Macao is a quarterly simultaneous-equations econometric model which currently includes 89 equations and 250 variables covering seven blocks of the Macao economy — consumption, investment, external sector, prices, government, labour market, and monetary sector. Time series data used starts from the first quarter of 1998 and is updated once new data is available. Its results give the local community a timely understanding of the state of Macao’s economy and help decision-makers to make prudent choices for the future.

The Macroeconometric Structural Model of Macao was developed by Nobel laureate Sir James Mirrlees and Ho Wai Hung, Liu Chun Wah, Chan Chi Shing, and Kwan Fung from UM’s Department of Economics.

Source: Faculty of Social Sciences

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