SINGAPORE has slipped into recession and the Government has revised its 2008 growth forecast to around 3 per cent from a previous estimate of 4 to 5 per cent.
The economy shrank at an annualised, seasonally adjusted rate of 6.3 per cent in the third quarter, according to third quarter advance estimates released by the Ministry of Trade and Industry on Friday morning, pushing the export-dependent economy into its first recession since 2002.
The government also revised down its 2008 growth forecast to around 3 per cent from a previous estimate of 4 to 5 per cent.
Economists had expected the Republic to narrowly escape a recession in the third quarter by growing 1.1 per cent, lifted by a slight improvement in electronics output.
A recession is often defined as two consecutive quarters of economic contractions.
The deepening financial crisis, which sparked banking crises in the United States, Iceland, Britain, Germany and Ireland, is threatening to drag the world economy into recession.
The advance estimate, based largely on July and August data, gives an early indication of the economy's performance during the July-September period.
MTI said the Singapore economy is estimated to contract by 0.5 per cent in the third quarter, than a year ago.
On a seasonally adjusted, annualised quarter-on-quarter basis, real GDP declined by 6.3 per cent, following a 5.7 per cent decline in the previous quarter.
On the outlook for the year, MTI said since the revised GDP forecast in August, 'external economic conditions have deteriorated more than expected and some sectors of the economy have weakened significantly on account of industry-specific or domestic factors.
'The worsening of the financial crisis in the US in recent weeks has deepened the credit crunch, making it more difficult for businesses to sustain economic activities. With unemployment on the rise and house prices continuing to fall, US consumer sentiment has weakened further and will affect demand for exports from Asia and the rest of the world.'
It added that Singapore's export-oriented sectors, such as manufacturing, will be affected, noting that Europe is also facing severe strains in the banking sector, tighter credit conditions, and adjustments in housing prices.
Growth in major economies such as Germany, France, Italy and the UK has dipped sharply in the second quarter.
Growth forecasts for several Asian economies, such as China, India and South Korea, have been revised downwards since the start of the year.
The estimates showed that Singapore's manufacturing sector continued to be weighed down by the negative growth in biomedical sciences, as pharmaceutical companies are still producing a mix of pharmaceutical ingredients with values lower than compared to a year ago.
The precision engineering and chemicals clusters have also slowed, because of weaker external demand.
The construction sector grew by 7.8 per cent in the third quarter, compared to the 18.3 per cent growth in the first half of 2008. Despite a strong pipeline of construction projects, a shortage of contractors, a tight labour market for engineers and project managers, and longer waiting times for equipment, have delayed the realisation of these projects.
MTI said the financial services sector is likely to see slower growth in the coming months as the ongoing global financial crisis has heightened uncertainties for sentiment-sensitive segments such as stocks trading and fund management activities.
'Taking into account the slowdown in the global economy and key domestic sectors, MTI has revised the 2008 GDP growth forecast to around 3 per cent. The inflation forecast of 6 - 7 per cent for 2008 remains unchanged,' it said.