UM releases latest 2020 macroeconomic forecast for Macao

In response to the worldwide effects of the COVID-19 pandemic, the University of Macau’s (UM) Centre for Macau Studies and the Department of Economic have announced the revised 2020 Macau Macroeconomic Forecast using the Macroeconometric Structural Model of Macao. The forecast has been revised twice, in February and April respectively, since its first announcement in January this year. 

The revisions were based on the following assumptions: 

First, compared to before the pandemic, total visitor arrivals and the gross gaming revenue now play a more important role in Macao’s economic growth. Because of the worldwide effects of COVID-19, the growth factors of other regions are relatively not significant. Epidemic prevention and control tends towards normalisation. It appears that the coronavirus has not taken a widely spreading pathway in Africa compared with the rest of the world. China’s economic growth is expected to be less than 2 per cent. Hong Kong’s economy is expected to see steady deterioration. 

Second, the forecast is divided into five scenarios with different numbers of total visitor arrivals, which are:

Scenario 1: 5.16 million visitor arrivals;

Scenario 2: 7.92 million visitor arrivals;

Scenario 3: 10.68 million visitor arrivals;

Scenario 4: 9.9 million visitor arrivals; and,

Scenario 5: 12.66 million visitor arrivals. 

Upon a comprehensive analysis and on the basis of the above assumptions, the research team believes that the first, the second, or a mix of the two scenarios, is likely to materialise for Macao in 2020. If the forecast is based on the first and second scenarios, Macao’s real GDP growth rate may post a growth rate at the same level as in 2004. If the forecast is based on the third to fifth scenarios, Macao’s real GDP growth rate may post a growth rate at the same level as in 2005.

Based on the above five scenarios, the revised forecasts of major economic variables are as follows: 

·      The baseline forecast of Macao’s economic growth are -59.1%, -58.4%, -57.7%, -55.8% and -55.7% respectively. The highest and the lowest values of the range are -54.5% and -60.0%.

·         The baseline forecast of the exports of services adjusted down by -81.0%, -78.8%, -77.0%, -74.3% and -72.6%.

·         Private gross fixed capital formation adjusted down by around 8%.

·      Total gross fixed capital formation adjusted down by 33%. If government gross fixed capital formation recovers and increases substantially, the decline will significantly slow down.

·        Inflation adjusted up by 2.1% to 2.2%, in tandem with consumer price, which is a modest change compared with the initial forecast made in January.

·       Median monthly employment earnings adjusted down by 5.8% to 6.7%, among which the difference between the highest and the lowest rate is projected to be 6.8%.

·       Unemployment rate is projected to be between 2.2% to 2.8%, which is a moderate increase. Excluding non-resident workers, the unemployment rate for residents is expected to be 3.2% to 3.9%.

·       The ultimate government revenue is expected to drop to between MOP 71.3 billion and MOP 92.9 billion. 

As mentioned above, the coronavirus outbreak mainly affects Macao’s economic growth, with less impact on the two major economic variables: unemployment rate and inflation rate. This is how Macao’s economy is affected differently by the pandemic compared to other economies. The epidemic is a short-term shock to Macao’s economy. However, as it has already impacted Macao’s economy in the first and second quarters of this year, there will be a negative impact on the annual economic growth rate. Following the SARS epidemic in 2003, the Individual Visit Scheme was launched to boost Macao’s economy. But similar schemes will have less effect on economic recovery following the COVID-19 as the base number of visitors has increased.

Furthermore, with the economic tension between China and the United States, and the slowdown in China’s economic growth, Macao’s economy is expected to deteriorate in 2020. The positive factors of Macao’s economic recovery include the city’s fiscal surpluses, business environment, and comparatively reasonable consumer prices and employment rate.

Therefore, the macroeconomic policy and objective should aim to stabilise the labour market in the short run, prevent the closedown of businesses, and maintain the confidence of producers and consumers, in order to promote a gradual economic recovery.

It must be pointed out that, the five scenarios mentioned above and the relevant analysis do require an in-depth study to ensure the accuracy of the forecast and the effectiveness of the policies formulated based on the forecast. If the coronavirus pandemic demonstrates a fundamental change, it is necessary to revise the forecast again.

About the Macroeconometric Structural Model of Macao

The Macroeconometric Structural Model of Macao is a quarterly simultaneous-equations econometric model which covers seven blocks of Macao’s economy –consumption, investment, external sector, prices, government, labour market, and monetary sector. It includes 89 equations and 251 variables. Time series data start from the first quarter of 1998 and is updated once new data are available. Its results provide the community with a timely understanding of the state of Macao’s economy and support prudent decision-making. The model was founded by Prof Sir James Mirrlees, winner of the Nobel Prize in Economic Sciences and honorary doctor of social sciences of the University of Macau, as well as faculty members in the Department of Economics at UM. Project members include Dr Chan Chi Shing, postdoctoral research fellow in the Centre for Macau Studies; Prof Ho Wai Hong, associate professor in the Department of Economics; Prof Kwan Fung, assistant professor in the Department of Economics; and Prof Liu Chun Wah, assistant professor in the Department of Economics.

 

Table 1  Forecasts of Major Economic Variables in 2020
Year-on-Year Growth Rate		Scenario 1	Scenario 2	Scenario 3	Scenario 4	Scenario 5
(%)
	Lower	-60.0	-59.5	-58.8	-56.9	-56.9
Gross Domestic	Baseline	-59.1	-58.4	-57.7	-55.8	-55.7
Product	Upper	-58.1	-57.4	-56.6	-54.6	-54.5
	Lower	-10.9	-10.9	-10.8	-10.8	-10.7
Private Consumption	Baseline	-8.7	-8.7	-8.6	-8.6	-8.6
Expenditure	Upper	-6.5	-6.5	-6.4	-6.3	-6.3
	Lower	-40.5	-40.5	-40.4	-40.4	-40.5
Gross Fixed Capital	Baseline	-36.1	-36.0	-36.0	-36.0	-36.0
Formation	Upper	-31.6	-31.5	-31.5	-31.5	-31.5
	Lower	-61.7	-61.1	-61.1	-61.1	-61.1
Exports of Goods	Baseline	-58.3	-58.3	-58.3	-58.3	-58.3
	Upper	-55.6	-55.6	-55.6	-55.6	-55.6
	Lower	-81.6	-79.6	-77.9	-75.4	-73.8
Exports of Services	Baseline	-81.0	-78.8	-77.0	-74.3	-72.6
	Upper	-80.3	-78.1	-76.2	-73.2	-71.5
	Lower	-46.5	-43.2	-40.9	-40.0	-35.8
Imports of Goods	Baseline	-44.0	-40.2	-37.5	-36.7	-32.0
	Upper	-41.5	-37.2	-34.2	-33.3	-28.2
	Lower	-42.8	-41.8	-41.1	-40.2	-39.6
Imports of Services	Baseline	-40.6	-39.4	-38.8	-37.7	-37.0
	Upper	-38.4	-37.1	-36.5	-35.1	-34.4
	Lower	0.6	0.6	0.6	0.6	0.6
GDP Deflator	Baseline	2.1	2.2	2.2	2.2	2.2
Growth Rate	Upper	3.6	3.8	3.8	3.8	4.0
	Lower	1.5	1.5	1.5	1.5	1.5
CPI (Composite)	Baseline	2.2	2.2	2.2	2.2	2.2
Inflation Rate	Upper	2.8	2.8	2.8	2.8	2.8
Median Monthly	Lower	-9.6	-9.4	-9.1	-8.9	-8.8
Employment	Baseline	-6.7	-6.4	-6.1	-5.9	-5.8
Earnings	Upper	-3.7	-3.5	-3.1	-2.8	-2.7
	Lower	2.6	2.4	2.2	2.1	2.0
Unemployment Rate	Baseline	2.8	2.7	2.4	2.4	2.2
	Upper	3.0	2.9	2.6	2.6	2.5
	Lower	3.6	3.4	3.1	3.0	2.9
Unemployment Rate	Baseline	3.9	3.8	3.4	3.3	3.2
(Residents)	Upper	4.3	4.1	3.7	3.7	3.5
	Lower	652	709	749	810	849
Government Revenue	Baseline	713	778	820	889	929
	Upper	775	847	892	968	1,010

The above forecasted values are all real values except for the gross government revenue (2018=100)