Warnings from economists and major financial organizations, including the World Bank, that a global recession is on its way pose little threat to Macau’s casino industry, with any recession impact to be mitigated by COVID recovery, according to brokerage Bernstein.
In a note assessing the impact of a recession on US and Macau operators, Bernstein analysts Vitaly Umansky, Louis Li and Shirley Yang estimate the nationwide impact on GGR in the United States would be in the range of 3% to 11% – the decline limited by a higher reliance on non-gaming and recent cost-restructuring that has operators better placed than in previous recession times.
However, assuming an economic slowdown in mainland China, the impact would be even smaller in Macau – in part due to the fact that the SAR is already at rock-bottom given the current COVID situation and low investor sentiment.
“The Macau border policy with China under COVID restrictions has a much more severe impact than any economic downturn,” the analysts said.
“Due to the prolonged travel and visa restrictions, including periods with border closure and mandatory quarantine requirement, visitations into Macau fell by 85% in 2020 from 2019, and still down 80% from pre-pandemic (2019) level in 2021.
“Therefore, we expect that any impact from a pure economic recession on Macau will be offset by the city’s eventual recovery from COVID, and once the travel restrictions are lifted with a fully reopened border, visitation recovery close to pre-pandemic level will significantly boost Macau’s gaming revenue.”
Bernstein also compared the current pandemic situation, which has seen revenues down by 70% to 80% compared to 2019 levels, with China’s anti-corruption crackdown of 2014 to 2016 which saw revenues fall by 37%.
While the impact of COVID-19 has been far greater than either China’s crackdown or the Global Financial Crisis of 2008, the analysts suggested Macau is far better placed for a strong recovery than previously due to its reduced reliance on the VIP gaming sector.
“From the perspective of VIP/Mass gaming breakdown, VIP GGR suffered much more than the mass sector during both the anti-corruption and COVID periods,” they wrote, pointing to the recent collapse of VIP following the arrests of former Suncity Group CEO Alvin Chau and Tak Chun Group CEO Levo Chan.
“In 2021, VIP GGR remained at ~20% of pre-pandemic level, while Mass GGR recovered to 37% of pre-pandemic level. There is limited room for VIP revenue to decline further.
“Meanwhile, as the Macau gaming revenue structure is now leaning heavily towards the mass business, once the border fully reopens the recovery from mass should drive the sector to bounce more swiftly, compared with the previous recovery from anti-corruption.”