The government on Friday downgraded its GDP growth forecast for the year, predicting the local economy to shrink by 3.2 percent.

That's significantly worse than its previous estimate of between a contraction of 0.5 percent and a 0.5 percent expansion.

The announcement came as the authorities confirmed that the economy shrank by 4.5 percent year-on-year for the third quarter.

"The worsened external environment and continued disruptions to cross-boundary land cargo flows dealt a serious blow to Hong Kong's exports," said government economist Adolph Leung, adding that domestic demand was also weighed heavily by the rising interest rate environment.

The SAR has recorded three consecutive quarters of economic decline, after a 1.3 percent year-on-year contraction in the second quarter and a 3.9 percent fall in the first quarter.

Officials said judging from the economic performance in the first three quarters, they had to further lower their forecast for 2022 again, having revised their predictions twice earlier this year.

The government also trimmed its inflation outlook, saying it now expects the underlying consumer price inflation to reach 1.8 percent this year, instead of 2 percent projected earlier.

The headline inflation rate was also revised down from 2.1 percent to 1.9 percent.

The authorities said they expect overall inflation to stay moderate in the near term as mild domestic cost pressures should help offset the impact of rising import prices due to inflation in many major economies.