SINGAPORE: Singapore's economy shrank for the first time in three quarters as weaker manufacturing output interrupted the island's recovery from its deepest recession since independence in 1965.

Gross domestic product contracted an annualized 6.8% from the previous three months last quarter after climbing a revised 14.9% from July to September, the trade ministry said in a statement today. That was worse than the median estimate for a 2.1% decline in a Bloomberg News survey of eight economists. The economy shrank 2.1% in 2009.

The island's outlook is closely linked to global conditions and a "sluggish recovery" in demand for exports by companies such as Stats Chippac Ltd. will moderate growth prospects, the government said in November. Still, the economy is improving after a "volatile" year that saw it shrink for the first time since 2001, Prime Minister Lee Hsien Loong said Dec. 31.

"In Asia, countries that are more reliant on export demand may be subjected to more swings than those that are led by domestic demand," Alvin Liew, an economist at Standard Chartered Plc in Singapore, said before the report. "The prospects for 2010 will be better and we can expect a few more growth drivers for Singapore including financial services and the tourism industry."

Singapore's $182 billion economy grew 3.5% in the fourth quarter from a year earlier, compared with the median estimate for a 3.8% gain in a Bloomberg News survey of nine economists.

Asia Rebounds

The Singapore dollar was little changed at S$1.4053 versus the U.S. currency as of 8:01 a.m. in Singapore today.

Asia has led the world's recovery from its economic slump, and central banks from Australia to Vietnam have started to increase interest rates or indicate a readiness to exit monetary stimulus.

Still, the region's rebound could falter as the effect of stimulus measures fade, the Asian Development Bank's Office for Regional Economic Integration said Dec. 15. Hong Kong Chief Executive Donald Tsang said Dec. 29 an economic "double dip" is possible in the middle of this year.

Australia and Vietnam raised interest rates last quarter to contain inflation. Singapore, which lowered corporate taxes and tapped its reserves last year to fund record spending, said last week it will extend by a year measures to help companies get financing, after deciding in October to prolong a wage-subsidy program.

Manufacturing Wanes

Manufacturing, which accounts for about a quarter of the economy, rose 1% from a year earlier last quarter, after gaining a revised 7.9% in the three months through September. It fell 38.4% from the previous quarter.

"This decline was mainly due to a contraction in the output of the biomedical manufacturing and transport engineering clusters," the trade ministry said.

Singapore is seeking ways to ensure its economy grows in a more sustained manner after three recessions in the past decade. The island's dependence on electronics and pharmaceutical exports has made it vulnerable to fluctuations in global demand and business cycles, pushing it into a deeper slowdown than many neighbors last year.

Prime Minister Lee announced the formation of the Economic Strategies Committee in May, which is due to unveil its recommendations this month.

Services Climb

The island's services industry grew 3.7% last quarter from a year earlier, after falling 2.2% in the previous three months. The construction industry gained 11.2%, compared with a 12.8% increase in the third quarter.

The opening of two casino-resorts in coming months will contribute to the services industry, economists including Selena Ling of Oversea-Chinese Banking Corp. in Singapore said. Genting Singapore Plc unit Resorts World Sentosa plans to open its $4.5 billion project in early 2010, and Las Vegas Sands Corp. says it may open the Marina Bay Sands in April.

The economy will grow 3% to 5% in 2010, Lee said Dec. 31, reiterating a previous forecast.

The figures today were computed from data for October and November. Revised numbers are due to be released next month.