Singapore's trade-driven economy shrank for the first time since 2003 in the fourth quarter as weak manufacturing dragged on growth and momentum is expected to weaken further in 2008.
The city-state's economy, which relies heavily on exports, contracted at an annualised, seasonally adjusted rate of 3.2 percent in the fourth quarter, below a revised 4.4 percent expansion in the third-quarter and the weakest performance since the second quarter 2003.
Fourth-quarter gross domestic product rose 6.0 percent from a year earlier, leaving full-year growth at 7.5 percent, an advance government estimate showed.
Prime Minister Lee Hsien Loong said on Monday that the economy grew 7.5 percent in 2007, the bottom end of the government's 7.5-8 percent forecast, and below market forecasts for 8 percent growth.
Lee said on Monday that economic growth would slow to between 4.5 percent and 6.5 percent in 2008 off the back of an economic slowdown in the United States, Singapore's second-biggest export market for non-oil exports.
Economies across Asia, many of which are heavily reliant on exports, are bracing for a slowdown in 2008 as a housing downturn takes its toll on the giant U.S. economy.
Some economists say Singapore's economy -- where the value of external trade was twice as big as GDP in 2006 -- is a good barometer for gauging the impact of a U.S. slowdown on Asian exports.
Singapore's growth is largely fuelled by manufacturing of goods such as electronics, pharmaceuticals and oil rigs. But, it is leaning more on other sectors, such as tourism, financial services and construction, to maintain momentum.
The estimate is based largely on data from October and November and gives an
early indication of the economy's performance in the October-to-December period.
Fourth-quarter growth was underpinned by the booming services and construction sectors.
Despite slowing growth, economists say the central bank will likely leave its monetary policy, allowing for a gradual, modest appreciation of the Singapore dollar, unchanged given that inflation is running at a 25-year high on rising food and housing costs.
The central bank conducts monetary policy through its currency rather than interest rates, as most central banks do. It tightened monetary policy in October to rein in prices.
The services and construction sectors grew 8.3 percent and 24.4 percent from a year earlier, respectively, compared with 8.3 percent and 19.2 percent in the third-quarter data.
The manufacturing sector, which accounts for about a quarter of the Singapore economy, grew just 0.5 percent, slowing down from 10.3 percent in the third quarter's figures.
Output from the manufacturing sector missed market expectations in October and November as weak production in the highly volatile drugs sector failed to offset persistent weakness in the electronics sector.