'Based on the situation of these few months, it is inevitable that negative growth will continue,' he said. 'This means the government will be less flexible in using financial resources under an economic recession.'
Pro-democracy protests have undermined Hong Kong's economy, discouraging tourists and reducing retail sales. Although this weekend's gatherings were relatively muted, a mass rally approved by authorities was scheduled for January 1.
Mr Chan said his budget speech to be delivered in February will focus on supporting business, safeguarding employment, reviving the economy and relieving social distress as the city also faces international turbulence such as protectionism and geopolitics.
The 'core competitiveness' of Hong Kong's financial market including the banking and securities system, the dollar peg and free flow of capital remain robust and orderly, Mr Chan said.
Visitor arrivals from China fell a record 46 per cent in October to slightly more than 2.5 million, less than half of the record set in January. The most recent data for retail sales in Hong Kong, once a mecca for shoppers, showed a 24.3 per cent plunge, the biggest ever.
Hong Kong's Chief Secretary Matthew Cheung insisted rule of law remained intact. He said Hong Kong is establishing an independent review committee to look into the social unrest, but appeared to be focusing on housing and income gaps, about which protesters have made little or no complaint.