Chief Executive Donald Tsang expects a continued economic recession and rising unemployment in Hong Kong next year as the financial crisis continues to intensify.

Tsang made the prediction yesterday after the first meeting of the Task Force on Economic Challenges, which was appointed to map out long-term solutions to the economic and financial problems faced by the city.

He pointed out that four sectors - financial services, trade and logistics, tourism and consumption, and property and construction - will be hardest hit.

"Being a small and open economy, the risk of Hong Kong going into recession in 2009 has increased," he said. "The unemployment rate looks set to rise as a result of the downturn, and more visibly in 2009."

He said the financial services sector will get most of the task force's attention because it is the anchor of all economic activities.

"If the financial services sector performs well, other industries will improve," he said.

Tsang said that members of the task force agreed that it is urgent to mitigate the impact of the tightening credit markets in Hong Kong and provide further measures to support small and medium-sized enterprises (SMEs).

But task force member Margaret Leung, HSBC's general manger and global co-head of commercial banking, did not promise to relax the credit tightening, only saying that the best way to help SMEs is to ensure demand for their products.

David Burton, head of the International Monetary Fund's Asia and Pacific region, isn't on the task force, but he attended the meeting to give an update on the current crisis. He said he expects Hong Kong's economy will decline in 2009, but he added that the conditions won't be worse than during the Asian Financial Crisis more than a decade ago, because of the city's strong banking system and high level of reserve.

"Hong Kong and Asia's strong position will help them weather the global storm," he said. Burton said the global economy will be hard hit in 2009, but he hopes there will be some signs of recovery in 2010.

Task force member Stephen Roach, chairman of Morgan Stanley Asia, expects that Hong Kong and the mainland will face downside risk over the next six to nine months.

He said the world's giant developed economies of the United States, Europe and Japan will unlikely experience a sharp recovery, as they did during the Asian Financial Crisis, adding that Hong Kong needs to look to its internal strength for recovery.

IMF's Burton said Hong Kong should remain as a financial center, and its ties with the mainland is a source of strength.

Another member, Victor Fung, group chairman of Li and Fung, said the company will study ways to strengthen integration with the mainland economy, particularly with Guangdong, in the coming weeks to help the trade and logistics industry cope with the crisis.

The task force will meet again in December.

(HK Edition 11/04/2008 page1)