Singapore's economy sharply missed expectations in the second quarter, even as analysts have been cutting their forecasts for growth in the city-state.
"Growth slowed across the board," Tim Condon, an economist at ING, said in a note Tuesday. "The last time we saw anything like this was in the fourth quarter of 2008," during the Global Financial Crisis.
ING is reviewing its full-year growth forecast, Condon said, noting the data implies a forecast cut to 2.5 percent from 2.8 percent.
Gross domestic product (GDP) contracted a sharp 4.6 percent on-quarter in the second quarter, well off a Reuters poll forecast for a 0.8 percent increase and a reversal from the first quarter's 4.2 percent expansion, according to data from Singapore's Ministry of Trade and Industry.
On an on-year basis, the advance estimate rose 1.7 percent, missing a forecast for a 2.4 percent rise from a Reuters poll and below the 2.8 percent rise in the previous quarter. That's the worst showing since the third quarter of 2012.
The Singapore dollar dropped after the data, with the U.S. dollar fetching as much as 1.3621 Singapore dollars, the local currency's weakest level since June, from around 1.3570 Singapore dollars before the data. The greenback later retreated to fetch around 1.3601 Singapore dollars.
"The leading indicator points to further downside growth risks in the coming quarters," Jason Daw, a foreign exchange analyst at Societe Generale, said in a note Tuesday. "Households are lacking the ability to leverage up, reflected in (stagnant) bank lending, and with wage growth near zero consumer spending should remain on the soft side." He expects Singapore's central bank is likely to ease policy in October.
Despite the upbeat national mood ahead of Singapore's 50th birthday celebrations next month, economic sentiment is souring in the city-state, as the open economy suffers from poor global demand. Singapore's economy is highly exposed to the global business cycle as a result of its vast trade and investment links, so external issues have a sizeable impact on the wealthy city-state.
The government's forecast is for a 2-4 percent expansion this year, on top of 2.8 percent growth in 2014.
"We were quite downbeat," said Alaistair Chan, an economist at Moody's Analytics, noting that the manufacturing sector drove much of the decline.
"Pharmaceutical exports were quite weak in May and that probably drove a lot of the manufacturing decline," he added, noting that this segment tends to be cyclical and may bounce back. The quarter's miss may spur a slight cut to Moody's forecast for economic growth of 2.5 percent for the year, he said.
Some, however, took the data with a grain of salt.
"It's probably not as severe as what the advance estimate indicated," Irvin Seah, senior economist at DBS, said. "There's a likelihood it could be revised upward essentially because of the very cautious and conservative estimate for the services sectors." The services sector contracted 2.6 percent on-quarter, the data showed.
Seah noted that the first quarter figures were revised significantly higher, offsetting some of the second quarter drop.
"Net-net for the first half of the year for overall GDP (there's) a marginal decline (sequentially)," Seah said, noting that puts the economy on course to hit DBS' recently lowered forecast for the full year. DBS, which had expected the on-quarter figure to contract 2.0 percent on-quarter, lowered its 2015 growth forecast to 2.4 percent from 3.2 percent in a note before the release of Tuesday's data.
Moody's Analytics' Chan also noted some positives from the data.
"The construction sector seems to be bouncing back," he said. "A lot of that is probably infrastructure, but the worst of the housing may be past." The construction segment expanded 2.7 percent on-year, the largest quarterly increase in a year, although it contracted 0.2 percent on-quarter.
--Nyshka Chandran contributed to this article.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter