Singapore's economy shrank by more than first estimated in the fourth quarter due to weakness in manufacturing, the government said yesterday as it lowered its growth forecast for this year, citing a looming US recession.
The economy contracted 4.8 percent from the third quarter on an annualized basis, the Ministry of Trade and Industry said in a statement, citing a sharp drop in biomedical manufacturing. The government had earlier estimated a 3.2 percent decline.
In the third quarter, economic output grew 5.1 percent from the second quarter. Overall, the economy grew 7.7 percent last year, following an 8.2 percent expansion in 2006, the ministry said.
Turning to the government's growth forecast this year, Ravi Menon, second permanent secretary of trade and industry, said this year is set to be "more challenging" than last year.
"Growth will be lower and inflation higher, which is not a good combination," Menon said at a press conference.
The government lowered its growth forecast for this year to 4-6 percent from 4.5-6.5 percent, as the trade dependent city-state prepared for a likely US recession.
The ministry's statement said that "current conditions suggest that the U.S. will likely enter a mild recession in the first half but its strong fundamentals, coupled with fiscal and monetary stimulus, will help to support recovery in the second half."
The ministry said a more severe recession in the US -- Singapore's largest trading partner -- would likely have a spillover impact on the country's "sentiment-sensitive" sectors such as electronics and financial services.
Singapore aspires to be a regional hub for wealth management and has drawn several top institutions to establish a regional center on the island.
Financial services extended their strong performance into the fourth quarter with a 16 percent on-year expansion, following the third quarter's 20 percent increase.
Also leading growth was construction, which rose 24 percent in the fourth quarter from a year earlier, up from 20 percent a quarter earlier.
Biomedical manufacturing contracted by 28 percent due to plant maintenance shutdowns which caused a fall in pharmaceutical production.
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