SINGAPORE (AP) -- Singapore slashed its 2009 growth forecast for a second time this month, saying the economy could shrink as much as 5 percent, as the city-state reels from plunging demand for its exports.
During the last two weeks, weaker than expected retail sales, unemployment and industrial production in the U.S. and Europe and falling Asian exports forced the government to rethink its expectations for this year, the Trade and Industry Ministry said Wednesday.
Singapore's gross domestic product is now expected to contract between 2 percent and 5 percent this year, the ministry said. The previous two forecasts had allowed for the possibility that the economy would expand this year.
"These developments will have a major impact on Singapore," it said in a statement. "Global economic activity has declined faster and deeper, and the spillover effects on key sectors of the economy will be stronger."
The ministry also revised down last year's economic growth to 1.2 percent from 1.5 percent, following a 7.7 percent expansion in 2007.
The economy shrank a seasonally adjusted 16.9 percent in the fourth quarter from the previous quarter, the largest contraction since the government began publishing the indicator in 1975. Compared to the same quarter a year ago, the economy shrank 3.7 percent.
"In all, this will mark the worst recession in Singapore's history," said Kit Wei Zheng, an analyst with Citigroup in Singapore.
Singapore's reliance on exports to drive growth is high even by the standards of export-dependent Asia, making it highly sensitive to the fortunes of major developed economies.
The government has said it plans to battle recession by boosting infrastructure spending and public aid in its 2009 budget, scheduled to be announced Thursday.
"All eyes will now be towards Thursday's budget, which no doubt will be aggressive," said Prakriti Sofat, an economist with HSBC in Singapore.
Non-oil exports, which account for about two-thirds of GDP, will likely fall between 9 percent and 11 percent this year, down from the government's earlier forecast of between a 1 percent growth and 1 percent contraction, the ministry's trade promotion agency, International Enterprise Singapore, said Wednesday.
The government also lowered its inflation forecast for this year, now expecting a range between no change in prices and a 1 percent drop from an earlier estimate of prices rising between 1 percent and 2 percent. Prices fell 0.6 percent in December and rose 4.3 percent last year, the statistics department said.
Manufacturing fell 13.5 percent in December from the same month the year before and dropped 11 percent from the previous month, the government said.