Hong Kong said Friday it now expects the local economy to contract more this year than earlier forecast, after gross domestic product tumbled at its fastest rate in a decade in the first quarter.
GDP in the January-March period plunged 7.8 percent from a year earlier, worse than the previous quarter's 2.6 percent contraction.
It was the biggest year-on-year decline since the third quarter of 1998, when the city was hit by the Asian financial crisis.
Slumping exports, weak private consumption, a deteriorating jobs market and the economic impact of the swine flu outbreak led the government to slash its forecast for GDP this year to a 5.5-6.5 percent contraction, from its previous forecast of a 2.0-3.0 percent decline.
"This is a huge slash in forecasts. The deterioration of the global economy is worse than what we expected earlier," Financial Secretary John Tsang told reporters.
"Hong Kong's economic situation in the second quarter will remain difficult," he said.
The government also lowered its inflation forecast to a 1.0 percent rise in the consumer price index from its previous expectation of a 1.6 percent increase.
Although Tsang said the pace of economic contraction would slow in the second half from the first half, he added that he could not yet see signs of recovery.
"The expected pickup in the mainland's economy, the recent rebound in global stock markets, and the relative improvement in economic sentiment both in the US and Europe have provided a glimmer of light at the end of a long tunnel, although a strong recovery is not yet in sight," he said.
Analysts shared the government's bearish assessment.
"The US economic data aren't looking good. And exports data (for Hong Kong) fell over the past three months while the jobless rate continues to rise. I'm not optimistic about this year's GDP," said Peter Wong, an executive director of HSBC.
— DowJones Newswires contributed to this report —
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