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By Susan Fenton
HONG KONG, May 15 (Reuters) - Hong Kong's economy shrank by 4.3 percent in the first quarter, the most since records began in 1990, prompting the government to promise more measures to shield the territory from the global downturn.
The economy has now shrunk for four straight quarters, its longest downturn since 2001 after the dotcom bubble burst and tracking regional neighbours Japan, Singapore and New Zealand.
The fall in gross domestic product was double that expected by some analysts and followed a plunge in exports and private consumption, plus signs of a deterioration in investment in the likes of buildings, machinery and other business equipment.
"It is obviously worse than expected. It tells you how a severe global financial crisis can affect a healthy, small and open economy," said Dong Tao, chief economist at Credit Suisse.
"Will Hong Kong see a further deterioration? It is not up to Hong Kong -- it is up to the rest of the world especially the United States, China and the financial market."
The grim data prompted the government to cut its forecast for the economy this year to a contraction of between 5.5 percent and 6.5 percent from an earlier forecast of between 2 percent and 3 percent.
Some analysts said the weakness in the economy showed the government had been too slow to provide fiscal support, but Financial Secretary John Tsang promised more relief measures within a month, although he didn't offer details.
"I anticipate that Hong Kong's economic performance in the second quarter will remain difficult," Tsang told a news conference.
"We may be experiencing at this time the worst period of the crisis," he said, adding that conditions could improve in the second half.
Other data on Friday showed that Europe sank deeper into recession in the first quarter, showing major demand centres are still suffering, which will keep a recovery in Asia at bay.
LOST OPPORTUNITY
Compared with a year earlier, GDP fell 7.8 percent in the first quarter, against a forecast 5.2 percent decline, its worst quarter since 1998 during the Asian financial crisis.
Exports plunged more than 22 percent from a year earlier, their biggest decline since the 1950s. That helped push up unemployment to 5.2 percent, from 3.2 percent last summer, and depressed consumer spending.
Economists say Hong Kong is unlikely to recover until the U.S. economy picks up, although tentative signs that China's economy is picking up may boost Chinese tourism to Hong Kong.
Private consumption expenditure, which excludes spending by tourists, fell 1.5 percent seasonally adjusted in the first quarter from the previous quarter. However, that was better than a 2.2 percent drop in the fourth quarter.
Gross domestic fixed capital formation, or investment in such areas as buildings and business equipment, dropped 12.6 percent from a year earlier although that beat a 17.8 percent decline in the previous quarter.
However, there is still no sign that exports have reached bottom and weak trade flows are likely to further push up unemployment and dampen consumption, analysts say.
Kevin Lai, senior economist at Daiwa Institute of Research, said the government should have done more to support the economy.
"There was a lack of fiscal support in Hong Kong compared with anywhere else and this fiscal timidity is showing in the GDP numbers," Lai said.
"The government has already promised to do something within a month, but I'm afraid it is too little too late. They have missed the window of opportunity there."
So far, fiscal stimulus has been limited to temporary tax cuts and waivers on utility bills, plus some help for the elderly and for businesses to access credit more easily.
Hong Kongers, however, are at least benefiting from low inflation. The government on Friday forecast headline inflation of 1 percent in 2009, down from a previous estimate of 1.6 percent. (Additional reporting by Alison Leung, Sui-Lin Wee, Fion Li, Christina Lo, Parvathy Ullatil and Umesh Desai) (Editing by Chris Lewis) (susan.fenton@thomsonreuters.com; +852 2843 6367; Reuters Messaging: susan.fenton.thomsonreuters.com@reuters.net)