Hong Kong's economy is likely to under-achieve for the next four years, its top finance official has warned.

In a briefing to legislators delivered on Monday, financial secretary Anthony Leung said that sky-high unemployment and falling retail sales were playing havoc with economic forecasts.

"March's forecast for 2003 to 2006 of nominal GDP growth of 4.4% may not be attainable," he said.

The prediction had been made in Mr Leung's budget speech, before the current predicament took hold.

Mainland trade

The bright spot in Hong Kong's situation is its relationship with China, which reacquired the territory from the UK in 1997.

Hong Kong has long been a conduit for trade with the mainland. Its role as a financial centre has also made it a convenient location for Chinese state firms to seek international finance, often through stock market listings.

Swelling exports arriving from China are propping up growth, which was 3.3% up in the third quarter from the level a year earlier.

Exports of goods and services were both up more than 11% over 2001.

Jobless record

But that still falls short of targets, as Hong Kong's trade-dependent economy suffers from the general world slowdown.

Weakness in the US, a key destination for exports, is a particular worry.

Unemployment is now at record levels of more than 7% of the workforce, while more than 10% of the population is on welfare, also a record.

Meanwhile, the government's budget deficit is ballooning.

The seven months to October produced a shortfall in government spending more than 60% higher than the HK$45.2bn ($5.8bn; �3.6bn) the government had predicted.