The Hong Kong economy is projected to shrink by 3 percent in 2009, following the 2.5 percent growth last year, says a report released here Thursday by the University of Hong Kong.

"Being a small and open economy dependent on trade and financial services, Hong Kong cannot possibly escaped from being battered by the financial crisis which has severely dampened global activity," says the report.

Hong Kong's economy is forecast to contract by 5.8 percent in the first half of this year, with real GDP estimated to be falling by 6.4 percent and 5.1 percent in the first and second quarter respectively.

This is in sharp downturn from the 5.8 percent real GDP growth recorded in the first half of last year.

The report estimates that Hong Kong's real GDP in the first quarter of this year will fall by 6.4 percent when compared with the same period last year.

Reflecting the sharp fall in global economic growth induced by the financial tsunami, this growth estimate is a downward revision from the -2.6 percent forecast released on Jan. 7, 2009.

"Hong Kong's real GDP started to fall in the final quarter of last year, and the downward adjustment is expected to continue," said Richard Wong Yue-Chim, professor of Economics at the university.

In the current quarter, Hong Kong's real GDP is forecast to shrink by 5.1 percent on a year-on-year basis, he said, noting that the contraction in output is due to the sharp fall in both external and domestic demand.

"Inflationary pressures are arrested by the sharp economic downturn. The headline inflation rate is projected to decelerate from 1.7 percent in the first quarter to 0.3 percent in the current quarter," said Alan Siu, director of the APEC Study Center at the university.

The continued weakness of both external and domestic demand will weigh down the labor market further, with the unemployment rate forecast to increase to 6.0 percent in the current quarter, he said.

(Xinhua News Agency April 2, 2009)