Given the recent sharp market declines, what implications do you foresee in the coming months for financial stability and investor confidence in Macau?
Henry Lei – Since Macau’s banking sector does not have a high exposure to loans related to Sino-American trade, re-export activities, trade finance operations, financial asset financing, or margin trading, the recent sharp stock market decline may not have a very significant direct impact, particularly on Macau’s financial stability. However, it will certainly negatively affect individual investor confidence.
– How should the Government, in the upcoming Government Action Plan, respond to the increase in global economic uncertainties, particularly the risk of a global recession?
H.L. – Being a small and open economy dependent on the export of tourism and gaming services, with China as its central market, and subject to global economic uncertainties and the risk of recession faced by China, the Macau Government has very limited economic policy options. Thus, it should resort to budget stimuli similar to those adopted during the pandemic, such as increasing public spending to initiate new infrastructure projects, introducing interest subsidy schemes, granting consumption subsidies or checks to families, with the aim of stabilizing internal demand in the face of the sharp reduction in external demand resulting from the current economic turbulence.
– In your view, to what extent is Macau’s economy exposed to external shocks such as the increase in US tariffs?
H.L. – Since most of the direct impacts of the trade war will be absorbed by the US’s main trading partners, such as China, Macau will be affected mainly indirectly. Economic uncertainties in China tend to reduce household incomes and, consequently, confidence and consumption, which may lead to lower tourist demand and a decrease in visitor spending, negatively impacting Macau’s tourism and gaming sectors. The budgetary measures to mitigate these risks are similar to those adopted during the COVID-19 period, an experience the Macau SAR unfortunately already knows.
– Should the Macau Government revise its budget forecasts in light of recent international developments?
H.L. – I believe it is still premature to revise the fiscal revenue forecasts that the Macau SAR Government may collect in 2025, given the high uncertainty regarding the development and scope of the trade war. However, several senior Macau SAR Government officials have already expressed concern about the drop in gaming revenues and the risk of economic slowdown.
– What role can monetary and fiscal policies play in protecting Macau from a potential international economic recession?
H.L. – Given the fixed exchange rate regime and the lack of independence to change local interest rates, the only available route is fiscal policy measures. As an open economy heavily dependent on external demand, it will be difficult for Macau to escape external shocks.
– How might the Government use its financial reserves to support key sectors of the local economy in the event of a global recession?
H.L. – Considering that Macau is still in the process of diversifying its productive structure, with the implementation of the “1+4” strategy, budgetary resources should continue to be used to promote or accelerate the development of the four new industries: modern financial services, big health, innovation and technologies, and sectors linked to exhibitions, culture, and sports. At the same time, a master plan should be developed to identify specific areas where Macau can position itself within these new industries, as it lacks resources for full participation in all.
Thus, the Macau SAR Government can take on a more proactive role through direct investment, ensuring public participation in projects with proven potential and controllable risk.
Additionally, tourism and SMEs are expected to be the sectors most affected by global uncertainties and recession. The Government could launch promotional campaigns and organize events to attract tourists from China and around the world, as well as use financial reserves to grant subsidies to families to stimulate or stabilize internal demand and mitigate expected negative impacts.
– To what extent should Macau diversify its economy in the face of the possibility of prolonged international volatility; and which sectors should be prioritized?
H.L. – Considering that Macau is already investing in the “1+4” industries, and that there are established foundations in these sectors, for coherence and efficiency, it is appropriate that the Macau SAR Government maintains its strategy of promoting “1+4,” with a particular focus on innovation, technologies, and Big Health. These sectors have the potential to create growth engines with inelastic global demand, which can enhance Macau’s economic performance.
However, in the short term, it will be difficult to significantly reduce dependency on the tourism and gaming sector, which remains the primary source of fiscal revenue for the Macau SAR.
– What economic indicators should the Government monitor to prepare for potential contagion effects from a global economic slowdown?
H.L. – Local indicators such as gross gaming revenue (GGR), number of visitors, average per capita tourist expenditure, inflation, unemployment, and the volume of non-performing loans can indirectly reflect the effects of the trade war. It is also essential to monitor the latest developments in the trade war, including new tariffs that the Trump administration intends to impose on Chinese products, as well as China’s retaliations.
– How might Macau balance its reliance on tourism and gaming revenues with the need for greater economic resilience in a more unpredictable international context?
H.L. – In my opinion, economic diversification is one of the solutions to help Macau address the economic fragility caused by global uncertainties. The development of a new industry with high international competitiveness and inelastic global demand—such as innovation and technologies—can reduce Macau’s dependence on tourism and gaming revenues, allowing the territory to generate and secure income even in adverse contexts, offsetting losses in the tourism sector.
