According to government data, a 4.5% contraction was registered in Hong Kong's economy in Q3 compared to the year before, weighed down by soaring global interest rates and a decline in trade.

This is the third consecutive quarter of year-on-year contraction for Hong Kong's GDP, signalling the worst contraction since Q2 2020.

The third quarter fall surpassed the 1.3% contraction in Q2, Reuters news agency reports. In addition, the government downwardly revised its full-year growth projection to -3.2% from a range of between 0.5% and -0.5% due to a deterioration in the global growth outlook.

"Looking forward, the markedly deteriorating external environment will continue to pose immense pressure on Hong Kong's export performance," according to a statement by a government spokesperson, who went on to say that further downside risks include Covid-related uncertainties and geopolitical tensions.

"The relaxed testing and quarantine arrangements for incoming visitors should provide some support to exports of services," the spokesperson added. 

Furthermore, the economy contracted by a seasonally adjusted 2.6% on a quarterly basis in the third quarter.

Although Covid social distancing curbs have eased in Hong Kong, the border with the mainland has been mainly closed since the beginning of 2020, impacting tourism spending, a crucial consumer growth driver.

In addition, Hong Kong is facing headwinds from elevated inflationary pressures and aggressive monetary tightening in advanced economies, the Reuters report adds.

"(Hong Kong) economic outlook remains cloudy on all fronts if the border remains partially opened in the fourth quarter," said DBS Bank economist Samuel Tse.

He continued that external trade would continue to face pressure.

The volume of Hong Kong's total exports of goods declined by 15.3% in September compared to 2021, with total export volume to the U.S. registering a year-on-year fall of 30.7% and a decline of 16.2% to mainland China.

Hong Kong's Financial Secretary Paul Chan said on Sunday that the economic outlook was "hardly optimistic," yet the economic recovery pace would progressively improve as long as the Covid situation in the city stayed under control and external activities returned to normal.