Special Report – “Tourism destinations face risks if they are struck by extreme weather events”

… and virtually no other jurisdiction in the world is as exposed to dependence on the tourism industry as Macau, says Fitch Ratings

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Macau is mentioned about a dozen times in the latest Fitch Ratings report, Climate Change Physical Risks Are a Growing Threat to Sovereignspublished less than a year ago.

According to the two authors, Ed Parker and Kathleen Chen, “Climate change will lead to increasing physical risks from higher and more variable temperatures, more frequent and intense droughts, floods, storms and other extreme weather events, rising sea levels and acidification of the oceans, and loss of biodiversity and damage to ecosystems among other effects.

“Natural disaster and extreme weather events have risen since the 1990s, particularly floods and storms, while some regions have become more prone to droughts,” they add.

As examples, they cite the Fitch-rated sovereigns like Mozambique, Vietnam, El Salvador, Jamaica and Thailand that have suffered the greatest damage relative to GDP during 2000-2020.

In this report Fitch assessed physical risk exposures from a range of current indicators and climate model projections, centered on 2040-2059, using a scenario of the Intergovernmental Panel on Climate Change (IPCC), which involves a rise in global temperature of 2.4°C above the pre-industrial average by 2100. “Undiversified economies in harm’s way of adverse climate trends, with weak buffers and limited adaptation capacity are most vulnerable,” the report states.

“Tourism destinations face risks if they are struck by extreme weather events, if secular climate change reduces their appeal owing to less favorable temperature or rainfall, loss of biodiversity or damage to ecosystems, or submergence of beaches,” the authors warn. “But others could gain if alternatives become less attractive.”

Unsurprisingly, the Fitch experts emphasize, “there is no one in the world that is as dependent on tourism as Macau.

“Global current account balances should sum to zero at any time (notwithstanding measurement issues), and country balances should adjust to shocks and sum to close to zero over the very long term,” the two experts recommend. “But they can be persistent and adjustment can be painful, eg requiring slower GDP growth to compress imports.”

flood risk

“Flooding is the most frequent type of natural disaster or extreme weather event,” the Fitch report explains.

Malaysia, Costa Rica, Indonesia, Guatemala and the Philippines have the highest annual rainfall (2011-2020 average), while Bangladesh, Costa Rica, Guatemala, Panama and Malaysia have the heaviest rainfall in the peak month, which better captures flood risk. “Nevertheless, flood risk is complex and reflects many other factors, including peak events within wet months, rainfall in areas upstream of major rivers, storm surges and the effectiveness of infrastructure, such as flood defenses and drainage.”

In the ranking prepared by Fitch, which aims to measure heightened vulnerability to severe rainfall events (largest five-day cumulative rainfall amount in 10 years, maximum month), Macau appears in a ‘dangerous’ place, as shown in the following chart:


Data from the World Bank, quoted by this report, shows the share of the population living in areas where elevation is below 5m.

On this basis, the Netherlands is the most exposed, although it has demonstrated strong capacity to mitigate this risk over several centuries.

Suriname, Maldives, Macau, Vietnam and Bahrain also look exposed.

Less climate change adaptation capacity than HK

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