Feast to famine

2014/12/3

From:Macau Business Daily

The worst has yet to come. As at November, Macau gaming revenue had plummeted for six consecutive months. According to our calculations, the crisis could cost the government a pretty penny.

T he crisis was expected to last just two to three months but is likely to drag on for a full year putting Macau’s economy in its longest recession since the handover 15 years ago. Gaming revenues here have dropped for six straight months as at November (a 19.6 per cent decrease year-on-year) and investors are expecting the slowdown to last until June 2015.
The biggest crisis since gaming liberalisation will weigh heavily on casinos, the government, and the economy here. According to Macau Business Daily calculations using official data and estimations by analysts, the gaming industry will lose MOP60 billion in revenues and the government MOP20 billion in direct gaming taxes from June 2014 to June of next year. For a casino-dependent economy like Macau the effects are the same: four straight quarters of recession. As in every single-resource economy, one day you’re growing 10 per cent, the next you’re in a 4 per cent recession.
Macau’s Gross Domestic Product dropped 2.1 per cent in the third quarter year-on-year after the export of gaming services decreased by 12 per cent due to a decline of 7 per cent in casino revenues during that quarter. Even with investment jumping 35 per cent, the economy failed to register positive growth showing how deep the level of dependency on gaming is.
But the worst has yet to come. Macau is likely to enter recession in the last quarter of the year – a recession is defined as GDP decreases for two consecutive quarters.

Recession

According to market estimations, after declining 7 per cent in the third quarter, gaming revenues will likely drop 20 per cent this quarter, 22 per cent in the first quarter of 2015 and 12 per cent in the second quarter of next year. In the end, casino revenues will decrease an average 15 per cent between June 2014 and June 2015 compared to the previous 12 months.
If Macau’s GDP declined 2.1 per cent after gaming revenues decreased 7 per cent even with investment up 35 per cent, it is very likely that with revenues from casinos declining at the double the economy will contract even further.
If the contributions to economic growth are similar to those in the third quarter (investment partially compensating for the drop in export of gaming services) the GDP of Macau could go down on average 4 to 5 per cent in each of the next three quarters.
Until June this year, when gaming revenues started to decline, Macau’s economy had grown non-stop at an average 10 per cent every quarter since 2013. In the first quarter of 2014, for example, GDP rose 12.4 per cent, making it one of the world’s biggest economic growth stories.
For the gaming industry and the government the crisis will cost more than two months in revenues and taxes. The big six operators here will see revenues slashed by MOP60 billion, while authorities will be MOP20 billion lighter in taxes, around 8 per cent of Macau’s GDP.

Black November

Using official data from the Gaming Inspection and Coordination Bureau (DICJ) and the most recent estimations from Morgan Stanley (published in November), gaming revenues in Macau will reach MOP323 billion in the 12 months ending June 2015. If market predictions are correct, this will mean a decrease of 15 per cent in revenues compared to the previous year (June 2013 to June 2014) when casinos here pulled in MOP382 billion from patrons. That’s also MOP60 billion less in revenues for the gaming companies here and for the government around MOP20 billion less in taxes (authorities charge 35 per cent of gaming revenues in taxes). Or in other words, the gaming crisis in Macau (if it lasts for 12 months) will cost two months of operations to casino here (overall Macau market makes around MOP30 billion each month in revenues) and the government two months’ taxes (authorities collect on average MOP10 billion every month in direct gaming taxes).
November was not the worst month of the year, it was the second worst – In October, gaming revenues decreased 23 percent. But last month, casinos here amassed for the first time since 2012 less than MOP25 billion in gaming revenues, a warning signal that the bottom is still ahead.

Copyright@Macau Business Daily