Hurt by the plunge in US-Chinese trade, growth was already declining in Hong Kong this year before anti-government protests erupted over a proposed extradition law and other grievances.
Hong Kong's government announced tax cuts and higher social spending Thursday to reverse a deepening economic slump aggravated by anti-government protests and the US-Chinese tariff war.
The territory's financial secretary, Paul Chan, cut this year's official growth forecast to 0 to 1 percent, which could be the worst performance since 2009 during the global financial crisis. The previous forecast was two to three percent.
Hurt by the plunge in US-Chinese trade, growth already was declining before anti-government protests erupted this year over a proposed extradition law and other grievances.
"The recent social incidents have hit the retail trade, restaurants and tourism, adding a further blow to an already-weak economy," said a statement issued by Chan's agency.
It also cited the impact of slowing trade in Asia, global financial market volatility and the risk of disorder as Britain leaves the European Union.
The measures announced Thursday will "provide impetus for our economy" and "help cushion the enterprises and people of Hong Kong against challenges," the statement said.
The changes will result in some 1.3 million taxpayers having their taxes waived, Chan said at a news conference. He said the government will increase payments for elderly and low-income residents and provide subsidies to small businesses and parents of schoolchildren.
The package will cost a total of $2.4 billion, according to Chan.
Hong Kong's economic growth held steady at 0.6 percent over a year earlier in the quarter ending in June but economists have cut forecasts as the US-Chinese trade war and protests mounted.
Tourist arrivals fell 31 percent in the first week of August from a year ago, according to the territory's secretary of economic development, Yau Tang Wah.
Business from mainland visitors, who account for 80 percent of Hong Kong's tourists, fell to between 33 and 50 percent, according to the Hong Kong Tourism Association. Hotel operators say revenue could decline 10 to 20 percent.
Some 29 countries and regions, including the US and Australia, have issued travel warnings about Hong Kong.
Retail sales slid 6.7 percent in June from a year earlier, according to the government. Retailers have told reporters they expect double-digit declines for July and August.
"There is a growing risk of an even worse outcome" if the confrontation between protesters and the government escalates, causing an outflow of capital, Julian Evans-Pritchard and Martin Lynge Rasmussen of Capital Economics said in a report.
The territory's central bank has reserves to defend the Hong Kong dollar's exchange rate, "but the city's property market would be hit hard, resulting in a deep recession", they said.