Hong Kong’s economy contracted at the fastest rate since the Asian financial crisis in the first three months of this year as exports passing through the territory saw their biggest drop in more than half a century.

The government on Friday predicted gross domestic product would contract by up to 6.5 per cent this year, after announcing the economy had shrunk at an annual rate of 4.3 per cent in the first quarter of 2009.

The fall in GDP was double that expected by some analysts and followed a plunge in exports and private consumption, plus signs of a deterioration in investment in the likes of buildings, machinery and other business equipment.

Total exports dropped 22.7 per cent in the first three months of 2009 compared with the previous year – the biggest drop since 1954. Overall investment fell by 12.6 per cent and private consumption by 5.5 per cent. The unemployment rate also rose to a 38-month high of 5.2 per cent in the first quarter.

Despite an upturn in the stock and property markets in the past two months, the Hong Kong economy has been hard hit by the global financial crisis because of its dependence on exports.

In February, the economy was forecast to contract 2.5 per cent for 2009. Now the government estimates it to drop between 5.5 and 6.5 per cent.

”It is obviously worse than expected. It tells you how a severe global financial crisis can affect a healthy, small and open economy,” said Dong Tao, chief economist at Credit Suisse.

”Will Hong Kong see a further deterioration? It is not up to Hong Kong -- it is up to the rest of the world especially the United States, China and the financial market.”

John Tsang, Hong Kong’s financial secretary, said the government would respond to the downturn by unveiling a new package of stimulus measures in the coming month. But he did not give any clue as to what it might contain and the government came under fire from economists for reacting too late to the economic crisis.

Kevin Lai, senior economist at Daiwa Institute of Research, said the government should have done more to support the economy.

”There was a lack of fiscal support in Hong Kong compared with anywhere else and this fiscal timidity is showing in the GDP numbers,” Mr Lai said. ”The government has already promised to do something within a month, but I’m afraid it is too little too late. They have missed the window of opportunity there.”

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