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HONG KONG, Feb 25 (Reuters) - Hong Kong's economy could shrink by 2-3 percent this year as it feels the impact of the global downturn, Financial Secretary John Tsang said on Wednesday in his annual budget, which offered few handouts to help people weather the downturn.
Having already announced a series of fiscal stimulus measures in recent months, and with government finances under pressure as the economy contracts, Tsang was reluctant to spend a lot more, although he did announce a rebate of up to HK$6,000 (US$769) for 2008/09 income taxpayers.
The Financial Secretary stressed the importance of maintaining the city's competitiveness as a financial centre and announced the government was setting up a fund to issue government bonds and confirmed it would amend tax laws in 2009/10 to facilitate the issue of Islamic bonds.
Hong Kong tipped into recession -- commonly defined as two consecutive quarters of negative quarterly growth -- in the third quarter of last year. Recession deepened in the fourth quarter as gross domestic product (GDP) fell 2 percent seasonally adjusted from the previous quarter, government data showed on Wednesday.
"As a result of the financial crisis and a slowdown in the global economy, Hong Kong's economy suffered a heavy blow in the latter half of 2008," Tsang said in his speech.
(For budget highlights, click on [ID:nHKG366778])
The government posted a provisional HK$4.9 billion fiscal deficit for 2008/09, which would widen to a HK$39.9 billion deficit for 2009/10.
"I forecast that the consolidated deficit will gradually decline and we will largely achieve fiscal balance by 2013/14," Tsang said.
For 2008 as a whole, the economy grew 2.5 percent, slowing sharply from a 6.4 percent expansion in 2007.
Weak consumption in the United States and Europe is hammering Hong Kong exports and the deteriorating economy is depressing consumer confidence and business investment. (Reporting by Alison Leung, Susan Fenton and James Pomfret; Editing by Ken Wills)