Hong Kong - Hong Kong has fallen into recession after recording a second consecutive quarter of contracting economic growth between July and September, according to government figures Friday.

The rate of gross domestic product growth in the city of 6.9 million fell from 4.2 per cent between April and June to 1.7 per cent in the third quarter compared to the same quarters last year.

The figure represented a 0.5 per cent contraction in growth from the previous quarter, the second consecutive quarterly contraction, meaning Hong Kong is now in a technical recession.

The government responded to the worse-than-expected figures by revising downwards its growth forecasts for the full year from 4 to 5 per cent to between 3 and 3.5 per cent.

The revised forecast means it anticipates even bleaker figures in the fourth quarter of between 0.8 per cent growth and a 1.2 per cent contraction year on year.

Total good exports grew just 1.4 per cent in real terms in the third quarter, the worst performance since the first quarter of 2002, government economist Helen Chan announced.

Chan blamed the slowdown on the international financial turbulence which she called "a full-blown global crisis causing significant clogs to financial markets around the world."

"A slowdown in the Hong Kong economy is inevitable," she said. "There will also be contagion from the turbulence in the international markets that is still unfolding."

Unemployment in Hong Kong has risen to 3.4 per cent while property prices are down by between 5 and 6 per cent in the third quarter with further falls likely, Chan said.

Reacting to the news, HSBC Asia-Pacific chairman Vincent Cheng told reporters he expected the economic situation to worsen. "It is going to be challenging," he said.

"In Hong Kong we need to maintain a flexible economic structure. There will be some pain. We will try our best to manage but no one can guarantee job security. We have to face up to this reality."

Hong Kong has already been hit hard by the global slump with the Hang Seng Index losing more than 50 per cent of its value since the beginning of 2008.

Four thousand Hong Kong construction workers learnt this week they are to be laid off as work on hotel and casino projects in neighbouring Macau are suspended because of the slump. (dpa)