Financial Secretary Paul Chan said in a blog post this month the economy grew less than 1.5 percent in the fourth quarter from a year earlier, against 2.9 percent growth in the previous three months.
That would mark the worst performance for a quarter since the first three months of 2016 and a notable slowdown from the 4.6 percent growth in the first quarter, which was the city's strongest performance in nearly seven years.
Calling the cooling a "significant slowdown", Chan said that meant economic expansion for the whole year of 2018 was likely to be about 3 percent - a two-year low. The government had revised its full-year growth forecast to 3.2 percent in November, down from an initial forecast of 3-4 percent.
"The economic outlook of Hong Kong in 2019 will continue to be clouded by the external uncertainties, including Brexit and the Sino-U.S. trade tension," said Samuel Tse, an economist at DBS Bank. "We expect GDP will grow by 2.5 percent in 2019."
Ratings agency Moody's forecast quarterly growth of 0.3 percent, up a tick from a 0.1 percent expansion recorded in the third quarter.
Economic growth data is expected to be announced during the government's budget around 11:00 a.m. (0300 GMT) on Wednesday.
Chan is widely forecast to offer tax rebates and property rate waivers in the annual budget, with supportive initiatives also forecast for businesses, in particular small- and medium-sized enterprises.
The government is also expected to throw its weight behind the Guangdong-Hong Kong-Macau Greater Bay Area economic zone, for which Beijing unveiled a blueprint last week, and help innovative and creative industries.
TRADE WAR
Hong Kong's trade-reliant economy is vulnerable to simmering trade tensions between the world's two largest economies and, if unresolved, they pose broader risks to the city this year.
As one of the most open and free economies in the world, Hong Kong's growth is also highly reliant on capital, trade, tourist and investment flows from China.
Trade and logistics remain one of the pillars of Hong Kong's economy, and account for nearly one-fifth of its GDP, higher than the financial sector. More than 700,000 people are employed in the trade and logistics sector.
The trade war is taking a toll at a time when the former British colony is already grappling with its weakest retail sales growth in 18 months, while visitor spending has been hit by a weaker Chinese yuan which makes Hong Kong more expensive for mainland tourists.
Analysts expect the recent launch of major infrastructure projects linking China and Hong Kong, such as a high-speed railway, in addition to a slower pace of rate hikes and a stronger stock market to provide some support going forward.
The Hong Kong dollar is pegged to the greenback, which means the city's de facto central bank is obliged to track U.S. interest rate moves.
More than 65 million people - or nine times the city's population - visited Hong Kong in 2018, up 11 percent from the previous year. Of those, 51 million were from mainland China.
Retailers in the financial hub are already feeling the chill from the weakest economic growth in China in nearly three decades, with the U.S.-China trade war and yuan depreciation also taking a toll.
A weaker property market has weighed on consumer sentiment, although the outlook for the world's least affordable real estate market has started to firm this year.
(Additional reporting By Twinnie Siu; Editing by Jacqueline Wong)
By Anne Marie Roantree
