Job seekers gather at a job fair in the New Territories district yesterday. Hang Seng Bank forecasts the city's unemployment rate will rise to 5 percent in 2009. AFP

Hong Kong's economic growth will slow down this year and it will not reach 4 to 5 percent as the government had forecasted, said Financial Secretary John Tsang.

"Unemployment rate went up in September and Hong Kong's economic growth would slow down in the third quarter from 4.2 percent in the second quarter," Tsang said in his column in a local media.

The government is due to release its third quarter growth figures tomorrow.

The finance chief also said that the SAR was feeling the impact of the global financial turmoil.

Both external and domestic demands are shrinking, he said, noting that the goods exports growth was stagnant in recent months and the retail sales volume growth was only 1.8 percent in September.

Tsang is not optimistic about the economic growth in the fourth quarter, either. "It's difficult to meet our early estimate of 4 to 5 percent for the whole year," he said.

A Reuters poll shows that the third quarter probably grew by 2.6 percent from a year earlier, its weakest pace in five years.

Economists see a 50:50 chance that the city's economy will slip into recession, the poll shows. The recession is defined as two consecutive quarters of negative quarterly economic growth.

Hang Seng Bank's senior economist Irina Fan said economic indicators in the third quarter have not fully factored in the negative effect of the financial market turmoil.

"The negative effects on the real economy are just starting to emerge," she said. Hang Seng Bank expects negative GDP growth in the first and second quarter next year.

The unemployment rate is climbing up, and the losses in stock market will definitely hurt consumer confidence. The effect will surface a quarter later, she added. The bank forecasts that the unemployment rate will rise to 5 percent in 2009.

The SAR government has announced tax cuts and adopted measures this year to help the elderly and lower-income groups to cope with inflation.

Fan expressed hope that the government will announce further measures. "Give some money back to people's pocket. Otherwise, the economic growth in the coming quarters may be worse than our current forecasts," she added.

UBS's economist Sean Yokota agrees that Hong Kong will be in recession. "After Singapore, Hong Kong has the largest exposure to exports in Asia, so it will be hit by a slowing global economy and that will lead to domestic demand contraction as well," Yokota said.

(HK Edition 11/13/2008 page2)