Hong Kong now expects its economy to potentially contract this year for the third time since 2019 as the city grapples with Covid restrictions, a trade slump and other global headwinds. 

Gross domestic product is forecast to contract or expand in the range of -0.5% to 0.5% in 2022, down from a previous prediction of 1% to 2%, the government said Friday. Its second-quarter GDP contraction was revised to 1.3% from an earlier estimate of 1.4%.

Officials had already cut their forecast for full-year growth in May from a previous prediction of 2% to 3.5%. 

Friday’s revision followed a more pessimistic outlook from economists, who now predict GDP will stagnate this year, down from earlier estimates of 1%, according to the latest Bloomberg quarterly survey. 

Officials attributed the downgraded forecast to a “worse-than-expected economic performance” in the first half of the year, along with the “sharp deteriorating of global economic prospects.”

External factors will “weigh heavily” on Hong Kong’s export performance for the remainder of the year, government economist Adolph Leung said in a statement, adding that “risk factors including the evolving pandemic and heightened geopolitical tensions warrant close attention.”

The city’s economy may see some relief as long as Covid cases remain under control, Leung said, adding that the “expected revival of the mainland economy should provide some offset.”

The government maintained its 2022 headline consumer price index forecast at 2.1%.

Along with Covid curbs that have strained businesses and consumer activity, the city is contending with challenges from rising interest rates and weakening global trade. The US Federal Reserve has sharply raised interest rates several times this year to combat inflation -- moves that Hong Kong has been forced to follow to maintain the local dollar’s peg to the US dollar.

In addition, Covid outbreaks and restrictions in mainland China have hurt Hong Kong’s trade. After posting double-digit growth every month last year, Hong Kong’s exports contracted in May and June as demand in China slumped.

The restrictions also contributed to a record brain drain, with the city’s population falling 1.6% to around 7.29 million in the year ended June 30, government data released on Thursday showed.

Hong Kong did get some good news this week when Chief Executive John Lee said the city would reduce the amount of time arrivals must spend in hotel quarantine. But the existence of any isolation period at all -- it’s now three days in a hotel instead of seven, with a monitoring period afterward -- still places Hong Kong in stark contrast with other places that have moved on.