Next week's Budget will continue Hong Kong's tradition of fiscal conservatism and small government, brokerage Salomon Smith Barney predicts. But it has reduced its gross domestic product forecast for this year from 3 per cent to 2 per cent and lowered its inflation estimate from 5 to 4 per cent. Head of Asia-Pacific economics research Guonan Ma said: 'Although there may be early signs of stability creeping back to Asia's financial markets, considerable damage has already been done. 'In addition, aftershocks could be quite substantial, as Asian financial markets remain fragile.' Mr Ma warned tinkering with the Hong Kong dollar's link with the United States dollar could 'aggravate problems by pushing interest rates even higher and severely damaging the local banking system'. He said it was unrealistic to expect the Government to use next Wednesday's Budget to announce a significant spending package aimed at stimulating the economy. 'Conservatism and small government have been Hong Kong's long-held tradition and a strength of the Hong Kong economy,' he said. 'Barring a significant worsening in Asia's financial crisis, downside risks in our new economic forecast will be extremely limited from here on. 'If the regional currency outlook does improve in a sustainable and meaningful way over the next three months, an upward revision is likely.' The brokerage is forecasting GDP growth for Asia, outside China, of 0.7 per cent. Domestic demand is expected to contract by 1.2 per cent.