Leading economists yesterday warned of growing risks to Hong Kong's economic growth this year, as Daiwa Institute of Research added its voice to those predicting a bout of recession. The local economy would be hard hit by the impact of the Asian currency crisis, they said, as retail sales shrank, unemployment rose and property prices floundered. Many houses said they saw further cuts to their forecasts, all of which already fall short of the Government's prediction for growth of 3.5 per cent. Daiwa regional strategist Peter Perkins said Hong Kong's economy would contract by 0.7 per cent this year, 'its first recession since the advent of national income accounts statistics nearly 40 years ago'. It would be 'not a growth recession, not a recession by historical standards, but a true economic recession', he said, adding that more than 100,000 jobs would be shed this year as unemployment hit a high of 5.6 per cent. Economists define a recession as two consecutive quarters of economic contraction. Daiwa said as firms cut staff, total real wages and salaries in Hong Kong would fall by 1 to 1.5 per cent this year. 'Real consumer spending is now expected to decline this year, buffeted by a negative wealth effect and falling real incomes,' Mr Perkins said. Lehman Brothers Asia economist Rob Subbaraman said: 'The risks are on the downside. It is looking increasingly likely that Singapore and Hong Kong will be struggling to make positive growth this year.' Lehman's November call of 0.5 per cent growth still stood, Mr Subbaraman said. Last year, gross domestic product rose by 5.3 per cent, with growth of 2.7 per cent in the final quarter. 'We are not at that position yet [of calling for a recession] but I can see how you would get there,' Morgan Stanley Asia managing director Peter Churchouse said. 'The variables that make me wonder whether the forecasts could still be too strong are Japan, continued yen weakness and [Japanese] growth of 0.4 per cent. That puts pressure on China's economy, and therefore there are higher local interest rates.' Earlier this month, JP Morgan said it was looking for a contraction of 0.6 per cent this year - the first house to call a recession - as higher interest rates knocked property and equity market prices. 'The first half of 1998 has likely ushered in the economy's first outright recession since the 1930s,' JP Morgan said. 'In the second half, some recovery can be expected, but its pace may be capped by weak external demand, thereby leaving full-year growth still negative.' ING Baring Securities - which has a full-year call for a 1.7 per cent expansion - also warned the economy might contract in the first half. ING economist Kevin Chan said the house was expecting a second-half rebound, partly underpinned by a rise in government infrastructure spending. 'The impact of reduced consumer spending and unemployment is more complex than it looks. Below 5 per cent, unemployment is not that dangerous,' Mr Chan said. ING suggests that the jobless rate will hit 4 per cent this year, up from 3.5 per cent in the first quarter. Mr Churchouse said the slowdown in retail spending and slump in tourist arrivals were of particular concern. Merill Lynch and ABN Amro Asia said yesterday their research teams were revising their Hong Kong figures. The Merrill call is due out today.