The government on Monday forecast non-oil domestic exports would fall 2-4% in 2008, against an earlier estimate of 2-4% growth, and predicted the economy would grow at a lower end of a weaker 4-5% forecast.

In the second quarter, the economy contracted at a annualised rate of 6 percent after seasonal adjustments, its worst performance in five years and in line with market expectations. Year-on-year the economy grew 2.1%.

Singapore's heavy dependence on trade makes the US$160 billion economy a good gauge of how the global slowdown is affecting Asia. Non-oil domestic exports to the United States fell 21% in the second quarter, while shipments to European Union dropped by 12%.

The Singapore dollar, the central bank's main policy tool, slumped to a near six-month low around S$1.41 to the US dollar.

''The balance of risk is shifting away from inflation toward growth as seen from the correction of the Singapore dollar last week,'' said Kit Wei Zheng, an economist at Citigroup.

No recession

Like many Asian countries, Singapore has been grappling with inflation even as economic growth slows. But officials suggested that inflation may have peaked and said - while not expecting at technical recession - that there will be no quick turnaround in global growth.

''The macroeconomic dynamics will remain fluid over the next 12 to 18 months. It is too early to tell what 2009 will bring,'' Ravi Menon, a permanent secretary at the trade ministry, told reporters.

''Current indications are that global economic growth will not see a quick turnaround.''

Construction grew 17.4% year-on-year and the financial sector grew 10.2% in the second quarter, but manufacturing shrank 5.2%.

Manufacturing, which accounts for about a quarter of economic activity, is expected to slow, reflecting weak US and European demand.

Given that, economists said it was unlikely that the central bank will further tighten monetary policy at its next meeting in October, barring a spike in oil prices.

''We believe our policy remains appropriate,'' said Ong Chong Tee, managing director of central bank the Monetary Authority of Singapore.

The central bank steers monetary policy by managing the Singapore dollar's nominal effective exchange rate - its relative value compared with a basket of currencies of trading partners - rather than by adjusting interest rates. The trading band and the currencies in the basket are kept secret.

The bank moved the centre of the band up in April, its most aggressive policy change since the 2003 SARS epidemic, to tame inflation that reached a 26-year high in June.

Reuters

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