HONG KONG (Reuters) - Hong Kong’s economy shrank in the first quarter from the final quarter of 2015, hit by falling exports and weak consumer spending, with the risk that momentum will slow further.

Visitors take photos on the waterfront of Kowloon peninsula facing Victoria Harbour and Hong Kong island in Hong Kong, China, January 12, 2016. REUTERS/Bobby Yip/File Photo

On the doorstep of the world’s second-largest economy, Hong Kong has been buffeted by China’s slowdown. A slump in visitors from the mainland, weak retail sales and falling asset prices have combined to put the economy on the verge of recession.

The trade-dependent economy contracted 0.4 percent in the first quarter, the first contraction in nearly two years.

On an annual basis, growth was just 0.8 percent in the first quarter, its weakest pace in four years. It was worse than economists’ expectations for 1.48 percent growth and less than half the pace of the fourth quarter.

“We think in the second quarter, or even the second half, there should be even more of a slowdown,” said Kevin Lai, senior economist at Daiwa Capital Markets in Hong Kong.

“I am also worried that the whole macro situation in Hong Kong looks like we are not any better than 1997 and 1998,” he said referring to the period before the Asian Financial crisis.

Hong Kong’s economy grew 2.4 percent in 2015, about half the pace of 2011, as China’s slowdown and a weaker yuan curbed Chinese spending, while a volatile stock market also hit domestic consumption.

A string of retailers from fashion to jewelry firms have posted grim performance figures, with retail sales contracting for the 12th successive month in March,

Hong Kong’s tourist arrivals, which dropped 20.5 percent in February, slid 4.3 percent from a year earlier to 4.21 million in March. Mainland visitors, which accounted for 72 percent of the total, fell 6.9 percent to 3.02 million.

Cracks are also widening in the city’s real estate market, one of the most expensive in the world, and accounting for nearly a fifth of economic output.

Apartment prices are down by 12 percent from a September high and investment banks predict a further 20 percent decline in coming months.

While the city’s leaders have announced a range of relief measures in its March budget, a turnaround in economic activity is unlikely in the near term given weak global growth and Hong Kong’s strong links to a slowing Chinese economy, analysts say.