Hong Kong  - Hong Kong faces its gravest economic test since World War II and might see its economy contract by more than 3 per cent this year, the city's leader said in an interview published Monday.

Beijing-appointed Chief Executive Donald Tsang told the Financial Times newspaper that he would consider dipping into government reserves to launch a mid-year stimulus package to tackle the problem if the economy worsened.

Tsang said he believed the former British colony's economy might contract more than the government forecast of 2 to 3 per cent in 2009.

"We have never seen such a rapid decline during my career," said Tsang, a career civil servant who was financial secretary under the last British governor, Chris Patten, before Hong Kong reverted to Chinese rule in 1997.

However, he added: "I've got 400 billion Hong Kong dollars [51.6 billion US dollars] in the bank, so I'm in a good position to spend more if I want to. ... If necessary we will do something in the middle of the year."

Hong Kong, a city of 7 million, slipped into recession at the end of 2008 after seeing two consecutive quarters of economic contraction.

The jobless rate has risen to 5 per cent, property prices have fallen sharply and the blue-chip Hang Seng Index has lost half its value since the beginning of 2008. (dpa)