The Hong Kong government announced Friday that the city's economy saw further improvement in the third quarter, with real Gross Domestic Product growing 0.4percent over the second quarter.

The year-on-year fall in GDP in real terms narrowed to 2.4 percent from 3.6 percent in the second quarter.

With both domestic and external sectors likely to show further improvement in the fourth quarter, GDP for 2009 as a whole is now forecast to contract by 3.3 percent in real terms, up from the forecast drop of 3.5 percent to 4.5 percent in August.

Hong Kong government's economist Helen Chan Friday said further improvement in the domestic sector offset the drag from weak external demand.

Hong Kong's merchandise exports still declined notably year-on-year in the third quarter, although the pace of decline slowed distinctly toward the end of the quarter. Total exports fell 13.2 percent in real terms year-on-year in the third quarter. Total exports fell 13.2 percent in real terms year-on-year in the third quarter.

On a seasonally adjusted quarter-to-quarter basis, services exports grew 4.6 percent. Yet trade-related service exports were still weak under the drag of sluggish trade flows.

The year-on-year change in private consumption expenditure reversed back to a small increase of 0.2 percent, after falling for four consecutive quarters.

The labor market also showed signs of improvement. The seasonally adjusted unemployment rate fell slightly to 5.3 percent in the third quarter, the first decline since the onset of the global financial crisis.

The Underlying Composite Consumer Price Index dropped 0.3 percent in the third quarter from a year earlier, but the underlying deflationary pressure tended to stabilize towards the end of the quarter on a seasonally adjusted basis.

With the development on the price front largely in line with earlier expectations, the forecast headline and underlying consumer price inflation rates remain unchanged, at 0.5 percent and 0.9 percent for 2009 as a whole.