Hong Kong's economy contracted 0.1 per cent in the second quarter, reversing the 0.6 per cent quarter-on-quarter growth in the first three months of the year.
The contraction, attributed mainly to the worsening euro debt crisis and slower recovery in the United States, prompted the government to lower its forecast for Hong Kong's economic growth this year to 1 per cent to 2 per cent, down from 1 per cent to 3 per cent.
Government economist Helen Chan, who presented the latest half-yearly economic report yesterday, said Hong Kong had been hit by a dive in exports.
'The negative spillovers from the sluggishness of the advanced economies to Asia have ... turned increasingly visible,' Chan said, 'Amid mounting headwinds to the global economy, the external environment would thus remain difficult and continue to overshadow Hong Kong's export outlook in the near term.'
Total exports of goods dipped by 3.9 per cent in the second quarter, in contrast to the 2.1 per cent growth in the preceding quarter, according to seasonally adjusted figures.
Hong Kong's exports and imports are predominantly re-exports to and from the mainland.
Chan said the economic outlook for the euro zone remained dim. The overall jobless rate across the nations using the common currency was 11.2 per cent, according to June figures. The worst is Spain, where almost one in four people are out of work.