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MACAU AND THE FINANCIAL CRISIS


Macau, the tiny former Portuguese colony on the coast of southeast China, has achieved an enormous amount of success in its economy in the recent years thanks to its gambling-related tourism. Today, Macau is the biggest gambling market in the world, with annual gambling revenues higher than Las Vegas and Atlantic city combined. Macao's economy grew approximately an average of 13.1% annually between 2001 and 2006. In 2007, Macau's gross domestic product (GDP) grew by an astounding 27.3 percent over the previous year. And in 2008, the GDP growth reached 12 percent with 30 million visitors. But Macau is not an exception, and it is starting to feel the effects of the global downturn. In fact, Macau's economic secretary predicts that the chances of the economy to suffer from negative growth in 2009 are high.


Macau, the tiny former Portuguese colony on the coast of southeast China, has achieved an enormous amount of success in its economy in the recent years thanks to its gambling-related tourism. Today, Macau is the biggest gambling market in the world, with annual gambling revenues higher than Las Vegas and Atlantic city combined. Macao’s economy grew approximately an average of 13.1% annually between 2001 and 2006. In 2007, Macau’s gross domestic product (GDP) grew by an astounding 27.3 percent over the previous year. And in 2008, the GDP growth reached 12 percent with 30 million visitors. But Macau is not an exception, and it is starting to feel the effects of the global downturn. In fact, Macau’s economic secretary predicts that the chances of the economy to suffer from negative growth in 2009 are high.

The majority of the visitors in 2008 came from mainland China, Hong Kong and Southeast Asia, which accounted for 57.7%, 27.5% and 5.5% of the total respectively. And as these areas have been hit heavily by the global recession, so will Macau’s economy. Analysts predict that the Chinese GDP growth will slow to 7 percent this year, down from 9 percent in 2008 on weakening external demand and decreasing domestic investment. In turn, many Chinese people will become more price-sensitive and will see their gambling trips to Macau as an unaffordable luxury. 

The global financial crisis has also begun to affect the employment condition of Macau. The unemployment rate and the underemployment rate for September-November 2008 in Macau was 3.3% and 1.6% respectively, up by 0.2 and 0.1 percentage points over the previous period (August-October 2008). But the worst is yet to come, and 2009 will be the year when the Macau’s economy really deteriorates.

In addition to the global financial crisis, Macau’s economy has been aggravated by Chinese travel restrictions. With these constraints, the Chinese authorities seek to restrain money laundering and illegal activity. But the fact is that it has affected, negatively, the number of visas issued to mainland Chinese high-rollers.

Tourism plays a key role in Macau’s economy, yielding about 40 percent of the local GDP and employing one-third of the work force. So now Macau’s authorities have a reason to be worried, since gaming revenues in the country plummeted 7 per cent in the last three months of 2008 to $4.5 billion. This is contrasted with a growth of up to 67 per cent in 2007. As a consequence, the dramatic expansion plan that was supposed to transform the enclave into Asia’s biggest tourist destination is in serious danger. Many companies have elected to significantly slow the pace of their development activities in the area, stopping the construction of new casinos.  

Despite the current situation, the potential of Macau is still breathtaking. Although, Macau cannot rely exclusively on travelers from China and Hong Kong anymore. Instead, it should move toward diversification. This will be necessary not only to boost big markets such as America and Europe, but also to promote Macao’s tourism in potential markets such as the Middle East, Russia, India and Indonesia. Although, to accomplish this, Macau’s authorities will have to foster more direct flights to Macau from these regions.

Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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