(Bloomberg) -- Hong Kong’s economy will grow next year at a slower pace than previously expected, according to economists, as the city struggles to dig itself out of what’s likely to be a deep contraction in 2022.

Gross domestic product is projected to grow 2.7% in 2023 from this year, according to the median forecast in a the latest Bloomberg survey of economists. That’s down from a prior estimate in an August poll of 3.5% growth. 

The revision comes as economists also slashed their expectations for 2022. GDP is now expected to decline 3% this year, substantially lower than the last survey which saw it remaining unchanged. The new forecast is roughly in line with the government’s revised estimate issued last week, when officials said they expect a 3.2% contraction from a year earlier. 

For the fourth quarter of this year alone, the economy is expected to shrink 2.4%, far worse than the 2.9% expansion forecast in the previous survey.

The downgrades reflect the numerous headwinds Hong Kong has been grappling with, including rising global and local interest rates, weakened trade, the city’s slow emergence from years of pandemic isolation and China’s own precarious economic situation. The city reported last month that GDP dropped in the third quarter a surprising 4.5%, well below expectations. 

In a separate survey of six economists, half of the respondents chose the expectation that China will have a prolonged exit from Covid Zero as the biggest downside risk for Hong Kong’s economy, while others selected the global slowdown and tightening financial conditions. 

Read more: China Return to Normal to Take at Least a Year, Analysts Say

“While the city is reopening, we think the boost in activity will struggle to offset immense headwinds from weakening external demand, rising interest rates, falling housing prices, and a likely withdrawal of fiscal transfers to households next year,” said Lloyd Chan, economist at Oxford Economics Ltd. 

Chan, who saw global tightening as the biggest risk to Hong Kong’s outlook, cut his 2022 growth forecast to a 3% contraction this year from an 0.8% fall. He downgraded next year’s projection to 1.4% growth from 3%.

A delayed reopening for mainland China, meanwhile, “means a delay in the recovery in Hong Kong’s retail and tourism sectors,” said Tommy Wu, senior economist at Commerzbank AG.

As long as people can’t move freely between Hong Kong and the mainland, outlook for some sectors will remain subdued since the city “serves as a gateway for goods and services in and out of China,” Wu said. “What’s more, mainland China’s economy will be difficult to recover meaningfully without a significant reopening, and this will continue to be a major headwind for the demand for goods and services from Hong Kong more generally.”

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