Department of Economics of University of Macau Announced

Department of Economics of University of Macau Announced

Macroeconomic Forecast for Macao2011

The Department of Economics of the University of Macau released its Macroeconomic Forecast for Macao2011today (March 4). Amid the global recovery, Macao’s economy has reverted to a positive trend of growth since the second half of 2009.The momentum of growth accelerates in 2010. With low bases of comparison in the first and second quarters of 2009, Macao’s real GDP recorded17.2% and 31.5% year-on-year in the firstand second quarters of 2010 respectively. In the third quarter of 2010, Macao’s real GDP continued its immense growth with 27.1% year-on-year and recorded 52.1 billion MOP (Figure 1 and 2).

Similar to the first and second quarters of 2010, the growth of economy was mainly supported by strong growth in gaming and tourism sectors.Exports of services rose substantially to a recorded high level. Improvement in domestic demand continued to reflect on the steady growth in private consumption. However, total investment kept on contracting amidslowly revival of large construction projects. The exports of goods continued to shrink. In tandem with the improvement in service exports and local consumption, both imports of goods and services grew rapidly. Inflation began to accelerate. Labour market was stable with unemployment rate and median monthly earnings varied little over quarter.

The Economy in 2010

The following highlights the economic situations of different sectors in the third quarter of 2010:

External demand of services was pushed up by the economic recovery in Macao’s major markets --- Mainland China and Hong Kong. As these two economies grew quickly, the visitors from these markets were eager to spend in Macao and particularly the gaming activities.In the third quarter of 2010, the exports of services were54.2 billionMOP,rose by 41.6% year-on-year. Meanwhile,the exports of services in gaming were 45.1 billion MOP, increased by 45.4% year-on-year.

The decline of Macao’s exports of goods continued.In the third quarter of 2010, the exports of goods contracted by 13.2% year-on-year to 1.6 billion MOP.The export of textile products and other non-textile goods went down 13.5%and 12.8% year-on-year respectively.

In tandem with the improvement in service exports and local demand, imports of goods and services rebounded significantly. For the third quarter of 2010, the imports of goods rose by 9.9% year-on-year to 12.3 billion MOP and imports of services increased by 33.6% year-on-year to 14.9billion MOP respectively.

Local consumer confidence continued to get better. Private consumption expenditure was 12.4 billion MOP, rose by 7.5% year-on-year in the third quarter of 2010. The household final consumption expenditure in domestic market increased by 4.8% and the expenditure abroad increased remarkably by 24.7% respectively in that period.

The recovery of business investment was very slow. The gross fixed capital formation continued to shrink by 11.6% year-on-year in the third quarter of 2010 to 4.1 billion MOP, decelerated from the 38.4% decline year-on-year in the second quarter of 2010. Upon slow recovery of major casino and hotel constructions, total private gross fixed capital formation contracted by 18.7% year-on-year in the third quarter of 2010 with construction investment contracted by 26.3% whileequipment investment rebounded and increased 9.8% year-on-year respectively.

Inflation began to accelerate amid higher local demand with increased import prices. The Composite Consumer Price Index on December 2010 rose by 3.9% year-on-year. For the two largest components of the Composite Consumer Price Index, food and non-alcoholic beverages, and housing and fuel, their year-on-year growth rates were 4.8% and 2.5% respectively. For the aggregate economy, the GDP price deflator increased by 3.3% year-on-year in the third quarter of 2010.

Labour market has been stable since the beginning of 2010. Unemployment rate for the third quarter of 2010 was 2.9%, up by 0.1 percentage points from the second quarter of 2010 and at the same level of the first quarter of 2010. Excluding the non-resident workers, the unemployment rate for local workers was 3.5%, up by 0.1 percentage points from the second quarter of 2010.

The total employment was 320.2 thousand in the thirdquarter of 2010, up by 1.4% year-on-yeareven thoughfewer non-resident workers were employed. Analyzed by industry, employment in manufacturing was 14.6 thousands, down by 9.3% year-on-year reflecting the sharpened decline in the exports of goods. Employment in construction was 27.5 thousands, dropped by 9.8% year-on-year in tandem with the deterioration of the investment in construction. Employment in gaming industry was 64.2 thousands, up by 6.1% year-on-year, amid the recovery of the gaming sector.

Median monthly earnings were 9,000MOP in the third quarter of 2010, up by 5.9% year-on-year. For the gaming sector which accounted for the largest share of the employed population, median monthly earnings were 13,000 MOP, up by 8.3% year-on-year. The median monthly earnings for the other major industries such as hotels & restaurants increased by 7.7% year-on-year to 7,000 MOP while the median monthly earning for wholesales & retails has been 7,500 MOP, up by 7.1% year-on-year.

Latest Forecast for 2011

With remarkable growth in its major markets of service exports and a low base of comparison in the first half of 2009, Macao’s GDP recorded an impressive growth rate of 25.3% in the first-three quarters of 2010. The low base of comparison may not happen again in 2011, but the momentum of growth of Macao economy is expected to go on. According to the IMF forecasts on January 2011, the global economy is expected to expand 4.4% in 2011. U.S. GDP is expected to expand 3.0% and the Euro Area is likely to expand 1.5%. For Mainland China, under the massive stimulus package aimed at lifting the domestic demand, the economy reverted faster than expected as GDP grew by 10.3% in 2010. However, aiming to control accelerated inflation, the Central Government began to tighten the money supply and impose various measures on housing market. The economic growth may slow down as a result. This will also affect another major market of Macao’s service exports, Hong Kong, to have a more measurable growth in 2011. Under this circumstance, Macao’s GDP is expectedto grow by 15.7%, with ranged from a pessimistic 9.3% to an optimistic 22.2% in 2011, according to the Macroeconometric Structural Model of Macao.

Macao’s service exports, in particular, the gaming sector, grew extraordinarily in the first-three quarters of 2010. With a more measurable growth in the major markets, the exports of services are expected to grow 21.0% in 2011. The decline of exports of goods is also expected to decelerate in 2011 with annual rate of 8.0%. Concomitant with the recovery in the total exports and domestic demand in 2011, the imports of goods and services are expected to grow by 8.6% and 21.0% respectively in 2011.

For the domestic demand, private consumption spending grew by 7.0% year-on-year in the first-three quarters of 2010 and is expected to grow4.0% in 2011.Investment continued to shrink at 33.9% in the first-three quarters of 2010. However, as the casino and hotel owners have committed to restart their suspended construction projects, the overall growth rate of investment is forecast to rebound at a rate of 10.7% in 2011.

Inflation, as measured by the change in the Composite Consumer Price Index, was 2.8% in 2010 and is expected to rise higherto4.6%in 2011 with a strongdemand from local residents and foreign visitors and higher imported prices. For the aggregate economy, the GDP price deflator is forecast to increase 4.5% in 2011.

The labour market is expected to be stable. Unemployment rate was 2.8% in 2010 and is forecast to be 2.6% in 2011. Excluded the non-resident workers, the unemployment rate of local residents was 3.5% in 2010 and is expected to be 3.2% in 2011. Median monthly earnings increased 2.6% in 2010 and are forecast to rise by 4.0% in 2011.

About the Macroeconometric Structural Model of Macao

The Macroeconometric Structural Model of Macao is a quarterly simultaneous-equations econometric model which currently includes 93 equations and 257 variables covering seven blocks of the Macao economy --- consumption, investment, external sector, prices, government, labour market, and monetary sector. Time series data used starts from 1998 first quarter and is updated once new data are available. Its results provide the community a timely understanding on the state of the Macao economy and facilitate the decision-makers to make prudent choices for the future.

Being one of the key research area, the Macroeconometric Structural Model of Macao is based on research led by Professor Sir James Mirrlees, conducted by the Department of Economics, and is sponsored by the University of Macau.

Table: Forecasts of Major Economic Variables
2006 / 2007 / 2008 / 2009 / 2010 / 2011
Level / (Actual) / (Actual) / (Actual) / (Actual) / (Forecast) / (Forecast)
Gross Domestic Product (Billion of 2008 MOP) / 137.0 / 157.2 / 161.6 / 164.1 / 202.8 / 234.7
Private Consumption Expenditure (Billion of 2008 MOP) / 38.0 / 41.9 / 44.2 / 45.2 / 48.1 / 50.0
Gross Fixed Capital Formation (Billion of 2008 MOP) / 47.6 / 59.0 / 50.3 / 34.0 / 27.0 / 29.8
Exports of Goods (Billion of 2008 MOP) / 21.4 / 21.5 / 16.0 / 7.7 / 6.8 / 6.3
Exports of Services (Billion of 2008 MOP) / 94.7 / 122.0 / 140.4 / 146.1 / 210.4 / 254.7
Imports of Goods (Billion of 2008 MOP) / 51.0 / 61.8 / 56.8 / 43.1 / 47.5 / 51.6
Imports of Services (Billion of 2008 MOP) / 28.1 / 40.4 / 47.9 / 41.9 / 58.4 / 70.7
GDP Deflator (2008 = 100) / 82.8 / 90.1 / 100.1 / 100.8 / 104.7 / 109.5
CPI (Composite) (April 2008 - March 2009 = 100) / 87.4 / 92.3 / 100.2 / 101.4 / 104.3 / 109.1
Median Monthly Earnings (MOP) / 6,659 / 7,772 / 8,175 / 8,650 / 8,875 / 9,234
Employment (Thousand Persons) / 265.1 / 300.4 / 322.8 / 317.4 / 320.3 / 336.3
Table (Continued) : Forecasts of Major Economic Variables
2006 / 2007 / 2008 / 2009 / 2010Q1-Q3 / 2010 / 2011
Year-on-Year Growth Rate (%) / (Actual) / (Actual) / (Actual) / (Actual) / (Actual) / (Forecast) / (Forecast)
Lower / 22.1 / 9.3
Gross Domestic Product / Baseline / 14.4 / 14.7 / 2.8 / 1.5 / 25.3 / 23.6 / 15.7
Upper / 25.1 / 22.2
Lower / 5.6 / 0.8
Private Consumption Expenditure / Baseline / 6.3 / 10.3 / 5.7 / 2.3 / 7.0 / 6.3 / 4.0
Upper / 6.9 / 7.3
Lower / -23.9 / -2.8
Gross Fixed Capital Formation / Baseline / 42.1 / 24.0 / -14.8 / -32.3 / -33.9 / -20.8 / 10.7
Upper / -17.7 / 24.1
Lower / -12.5 / -13.8
Exports of Goods / Baseline / 2.8 / 0.5 / -25.4 / -52.0 / -11.2 / -11.3 / -8.0
Upper / -10.0 / -2.2
Lower / 42.7 / 14.6
Exports of Services / Baseline / 15.0 / 28.8 / 15.1 / 4.1 / 50.8 / 44.0 / 21.0
Upper / 45.3 / 27.4
Lower / 8.9 / 2.4
Imports of Goods / Baseline / 16.1 / 21.3 / -8.1 / -24.1 / 9.1 / 10.2 / 8.6
Upper / 11.6 / 14.8
Lower / 37.2 / 11.7
Imports of Services / Baseline / 19.9 / 43.9 / 18.6 / -12.6 / 43.7 / 39.4 / 21.0
Upper / 41.7 / 30.3
Lower / 3.4 / 2.3
GDP Deflator Growth Rate / Baseline / 7.7 / 8.8 / 11.0 / 0.8 / 3.6 / 3.9 / 4.5
Upper / 4.3 / 6.7
Lower / 2.7 / 3.5
CPI (Composite) Inflation Rate / Baseline / 5.1 / 5.6 / 8.6 / 1.2 / 2.4 / 2.8 / 4.6
Upper / 2.9 / 5.7
Lower / 2.0 / 0.9
Median Monthly Earnings / Baseline / 15.4 / 16.7 / 5.2 / 5.8 / 3.5 / 2.6 / 4.0
Upper / 3.2 / 7.1
Lower / 2.7 / 2.3
Unemployment Rate / Baseline / 3.8 / 3.1 / 3.0 / 3.6 / 2.9 / 2.8 / 2.6
Upper / 2.8 / 2.9
Lower / 3.3 / 2.8
Unemployment Rate / Baseline / 4.4 / 3.7 / 3.8 / 4.4 / 3.5 / 3.4 / 3.2
(Local Residents) / Upper / 3.4 / 3.6