SINGAPORE'S faltering economy has entered a 'more advanced stage of weakness' as falling trade and tourism from other Asian countries adds to a slump in demand for the city-state's exports from the US and Europe, said its central bank on Tuesday.
Singapore's economic growth could see further slippage in the quarters ahead', said the Monetary Authority of Singapore (MAS) in its macro economic review.
As the global financial turmoil evolves to impact eocnomic activity worldwide, MAS said that Singapore is likely to be hammered given its heavy exposure to external demand.
Apart from the manufacturing sector, services industries, such as transport and tourism, will also be hit by the slowdown in Asian economies, it said.
'Looking ahead, the outlook for the global economy has deteriorted amidst heightened risk aversion and deleveraging in the financial sector', said MAS.
'The risks to eternal demand conditions continue to be on the downside, and a more several slowdown cannot be discounted'.
'The bank reiterated a 2008 growth forecast of 3 per cent and said next year the economy will likely perform below its potential', which the government has previously estimated as an annual growth rate of between 4 per cent and 6 per cent.
Former Prime Minister Goh Chok Tong, who now holds the post of Senior Minister in the Cabinet, said recently the economy will likely grow less next year than this year.
Gross domestic product shrank 0.5 per cent in the third quarter compared with a year earlier as a global economic slowdown triggered by a credit crisis in the US hurt demand for Singapore's mainstay electronic and pharmaceutical exports.
Manufacturing fell 8.5 per cent in the third quarter.
'As the financial crisis evolves into a broader and more protracted contraction in economic activity worldwide, there will be significant knock-on effects for Singapore, given its heavy exposure to external demand', the bank said.
The bank reiterated its inflation forecast for this year of between 6 per cent and 7 per cent and for next year of between 2.5 per cent and 3.5 per cent.
Prospects for a recovery late next year hinge on the performance of key global economies, it said.
Singapore this month cut its economic growth forecast for 2008 to 3.0 per cent from between 4.0 and 5.0 per cent after the economy slipped into a technical recession, described as two consecutive quarters of negative growth.
Real gross domestic product (GDP) declined by 6.3 per cent in the third quarter after contracting 5.7 per cent in the previous quarter, according to preliminary government data. -- AP, AFP