'Our customers aren't so much directly affected by the economic downturn but they are putting on hold luxury items like HK$7 million cars,' says Leon Roy, the general manager of Rolls-Royce Motor Cars Hong Kong.

'It generally takes around four months to close a sale and I asked our sales staff if any potential deals might be close to materialising. Usually, there is at least something cooking, but there was nothing. This is not a good sign. We have been through this before during Sars.'

The 'Roller' index confirms what more conventional data is showing - after a spectacular five-year bull run that in some regards surpassed even the excesses of 1997, Hong Kong is again hunkering down for harder times.

Bankers and brokers in Central are keeping cardboard boxes handy as each week threatens new lay-offs. Total unemployment is low, but hiring has slowed; property continues to slide from this year's peak, thousands of Hong Kong-owned factories across the border are bleeding losses.

US bailout or no, the knock-on effects of the global financial crisis will continue to reach across other sectors locally.

Hong Kong should be better cushioned from overseas economic shocks than in previous downturns because of closer ties to the mainland. But the mainland - specifically the Pearl River Delta region with which local businesses share their tightest links - is in trouble as well.

The question now is not whether things will get worse. Some economists argue the city will slip into recession within months. Others say it has already arrived.

Landlords, restaurateurs, importers and exporters, retailers and anyone in financial services are already asking: 'Will this be as bad as Sars? Or the Asian financial crisis? Or will it be something altogether different?'

'We must remember that in dealing with financial crises of this kind, Hong Kong has accumulated considerable experience,' Chief Executive Donald Tsang Yam-kuen said last week.

But his reassurance that 'the economic fundamentals of Hong Kong are good and our regulatory system, our fiscal economic system, are sound' did little to calm the markets. The Hang Seng Index ended the week at 17,682.4 points, just 0.28 per cent above its lowest close in two years.

Domestic consumption, trade flows, property prices and rents, and financial services are showing signs of a slowdown. The best leading indicators, apart from Rolls-Royce sales, show that Hong Kong has probably already entered a technical recession (quarter-on-quarter negative growth for two consecutive quarters).

A purchasing managers' index compiled by London-based Markit Economics has accurately predicted the last three periods of negative growth and its September result shows the economy probably contracted 0.4 per cent sequentially in the third quarter, which would qualify as a technical recession after a 1.4 per cent decline in real growth in the three months to June.

'The data suggests that the period of contraction is likely to continue at least until the end of the year,' said Markit chief economist Chris Williamson.

Trade and professional services that cater to it are already feeling the ripple effects of a cost crunch among manufacturers across the border. Rising raw material costs, currency appreciation, wage inflation and new labour laws have all taken a toll.

On the face of it, the numbers do not look too bad. Hong Kong's re-exports from the mainland have managed 8.88 per cent growth in the first eight months of the year, in Hong Kong dollar terms. But when expressed in yuan, re-exports actually contracted 0.97 per cent.

'The real issue is how much of a slowdown we are looking at [on the mainland],' said Goldman Sachs economist Enoch Fung.

'For Hong Kong, not only do you have re-export trade and services slowing, many of the businesses that are related to that could also face challenges and we are starting to see that filter through in terms of slowing employment growth.'

The initial wave of lay-offs and hiring freezes is likely to target the finance industry because of the credit crisis playing out overseas as well as a dearth of new stock listings this year as the Hang Seng Index slides.

'I don't think we're going to see anything like the wastage in the sector that they will have in London or New York, nevertheless I think headcount will be reduced and we're seeing that already,' said Peter Churchouse, a director at hedge fund manager Lim Advisors.

Reductions have been modest so far. HSBC Holdings last month axed 100 Hong Kong positions in a global round of lay-offs that totalled 1,100. Local hedge fund manager Value Partners Group last week cut 12 jobs or about 10 per cent of its staff roster.

'Banks will look at their cost side if they expect lower income growth,' said Peter Wong Tung-shun, an executive director of HSBC's Asia-Pacific unit. 'I don't rule out seeing more lay-offs in the banking sector if this unfavourable operating environment persists.'

The shakeout in the financial sector is likely to have significant implications for luxury housing market sales and high-end office rents, both of which have surged well beyond their previous 1997 peaks on the eve of the Asian financial crisis.

'Since the end of Sars in 2003, Hong Kong has experienced probably the most rapid rise in office rents that it's ever seen,' said Mr Churchouse, a long-time property market watcher.

From their trough in the autumn of 2003 to July this year, rents for top-grade offices in Central and Sheung Wan have risen nearly 300 per cent on average, CEIC Data said. Luxury home prices on Hong Kong Island have likewise more than tripled.

But now the bubble looks to be losing air and property agents say prices in the luxury residential market had dropped 10 per cent in the third quarter. They should fall at least another 10 per cent this quarter, said CB Richard Ellis associate research director Gilbert Wan Pui-bun.

'Some homeowners may fall into a panic when they can't find buyers for their flats. They may cut the asking prices or decide to lease them out instead,' he said.

Prime office rents also look vulnerable. DTZ Holdings research director Alva To Yu-hung estimates more than 70 per cent of tenants in Central's grade A offices are investment banks or related businesses.

The slowdown is also making things hard for local property brokers. Ricacorp Properties, Centaline Property and Hong Kong Property all said recently that they would reduce their headcounts by about 10 per cent before the end of the year.

All of these sectoral slowdowns will play out in lower levels of domestic consumption. Retail sales growth in August was sluggish at 3.9 per cent in volume terms year on year, down from 6.6 per cent growth in July and well below the double-digit increases routinely seen last year.

'Demand is slowing under the influence of troubled financial markets, subdued property market conditions, slowing Chinese growth and stagnant real wage growth,' Credit Suisse economist Tao Dong wrote last week in a research note.

Mr Tao foresees potential for 'a wave of business closures ... pushing the unemployment rate up and further eroding real purchasing power'.

In any case, everyone from taxi drivers to tycoons is likely to be watching their pennies in the coming months. The August sales figures included one more grim statistic: motor vehicle sales shrank 14.8 per cent year on year, the second fall in three months.

'We are still optimistic about next year,' said Mr Roy. 'But the million-dollar question is: How long will things take to bounce back?'

Additional reporting by Yvonne Liu, Natalie Chiu and Maria Chan