The Hong Kong economy shrank by 3.5 percent last year, according to advance estimates by the government.

That's worse than officials' previous estimate of a 3.2 percent contraction, and it's third time in four years the economy has recorded negative growth.

For the fourth quarter of 2022, GDP dropped by 4.2 percent year on year, after a 4.6 percent decrease in the previous three months.

A government spokesman attributed the full-year decline to the worsening external environment, adding, however, that stronger private consumption since the second quarter gave cause for optimism.

"Looking ahead, the Hong Kong economy is expected to show a recovery in 2023. While softer growth of the advanced economies will continue to pose challenges to Hong Kong's exports of goods, an expected faster growth of the mainland economy and the relaxation of cross-boundary truck movement restrictions should provide some support," the spokesman said in a statement.

Michelle Lam, a Greater China Economist at Societe Generale Corporate and Investment Banking, said while the contraction was worse than expected, she thinks the economy will rebound with the easing of Covid curbs.

"So of course with the removal of most Covid restrictions last year, the consumption of households should continue to improve. And China's reopening should also offer a boost to the tourism sector in Hong Kong, which has been suffering the most in the last three years," she told RTHK.

But Lam also warned of headwinds hindering a full recovery, such as a global recession and weak export demand.

"The US and Europe's momentum will continue to slow over the course of 2023 because of last year's inflation shock and also the tightening in monetary policy," she said.

Lam also questioned whether the number of inbound tourists from the mainland will reach pre-pandemic levels.