The unemployment rate could hit double figures, say economists.
Dr Enzio von Pfeil of Clarion Securities forecast unemployment could climb to 10 per cent over the next 18 months if the economic downturn in Asia did not improve.
Dr von Pfeil said one of the major problems was that workers had priced themselves out of the market.
'You can't get past the fact that Hong Kong is expensive,' he said.
While those sectors experiencing tough times - such as retail, restaurants and transport - would remain under pressure, other sectors would also be hard hit, particularly the construction industry and financial services.
Workers in those sectors faced a double-pronged attack: a shrinking economy coinciding with an increase in the number of foreigners coming to Hong Kong.
A spokesman for Dresdner Kleinwort Benson predicted unemployment could reach seven per cent.