Hang Seng Bank revised down Hong Kong's economic growth forecast from no growth to a 3 percent contraction.

Leading indictors, including the drop in local stock markets and the fall in November Purchasing Managers' Index (PMI), are signs of recession.

"Hong Kong's latest recession could be as bad as in the 1997 Asian financial crisis, when the city's economy had shrunk by 6.5 percent in 1998," Hang Seng's economists wrote in the latest edition of their regular report "Economic Focus".

The bank is, of course, uncertain about whether the stock market has hit bottom or not, but it "does not expect a strong rebound anytime soon," adding that the sharp correction in stock as well as property markets may take a toll in domestic consumption.

Besides, external demand is also weak. The Organization for Economic Cooperation and Development (OECD) leading indicators point to a sharp contraction in economic activities in the industrialized countries, including waning demand from Hong Kong's major export markets, the economists said.

"Local government's fiscal stimulus, infrastructure projects and the mainland factor will offer some buffers to domestic demand," the economists said.

However, government efforts are unlikely to have any major impact until the second half of next year at the earliest.

"We believe the local economy is unlikely to stage a strong rebound until the second half of 2010," the economists said. The bank made a forecast of 2 percent growth for the full year of 2010.

(HK Edition 12/23/2008 page2)