Gross domestic product (GDP), the value of all goods and services produced in the country, is now expected to expand at a rate of 4.0-6.0 percent instead of 4.5-6.5 percent, the Ministry of Trade and Industry (MTI) said.

GDP climbed a revised 7.7 percent for the whole of 2007 after growing at 8.2 percent in 2006, it said in a statement.

In the fourth quarter of 2007, the economy grew by 5.4 percent, down from 9.5 percent for the same period in 2006 and lower than the 6.0 percent preliminary estimate.

On an annualised quarter-on-quarter basis, however, the economy shrank 4.8 percent in the December quarter.

The shrinkage reflected a sharp decline in the biomedicals cluster, an increasingly important but volatile pillar of the manufacturing sector, rather than the impact of the ailing US economy, the ministry said.

For 2008, external conditions have worsened and downside risks have increased largely due to a slowdown in the world's biggest economy, the ministry said.

"Compared to three months ago, there is broad consensus now that the US economy is entering a slowdown," the ministry said.

"The key uncertainty is over the length and severity of this slowdown which will in turn influence how the rest of the world and key industries are affected.

"In view of the greater downside risks, MTI has revised the 2008 forecast for the Singapore economy to 4.0-6.0 percent, from the previous 4.5-6.5 percent."

GDP would grow in the upper half of the forecast range if the US economy entered a "mild recession" in the first half but recovered in the second half, it said.

Growth would come at the lower end of the range if the US economy slid into a "more severe recession", it added.

Battered by a credit crunch, the US economic growth slowed abruptly to a 0.6 percent annualised crawl in the fourth quarter of 2007 compared with 4.9 percent in the prior quarter, official US data showed.

Some economists believe the US economy is already in a recession.

Singapore's trade ministry also said consumer prices were expected to rise further this year. It raised its inflation forecast to 4.5-5.5 percent from 3.5-4.5 percent due to rising energy and food prices.

"2008 will be more challenging than 2007. Growth will be lower and inflation higher," said Ravi Menon, the second permanent secretary at the ministry.

"We expect inflation to get worse before it gets better. Inflation should peak during the course of the year and moderate in the second half," he said, adding it was unlikely to "return soon to the very low rates we have enjoyed in recent years."

Singapore banking giant DBS maintained its forecast for GDP to grow by 6.5 percent this year, but cautioned that "downside risk to growth is increasing as the external environment continues to deteriorate."

Menon, speaking at a news briefing, said the impact of a US slowdown on Singapore's economy would vary.

Sectors dependent on demand from the major economies such as electronics, wholesale trade and financial services would be hurt more, compared with tourism and business services which were supported by regional factors, he said.

Businesses dependent on domestic demand or specific industry factors such as construction and oil rig manufacturing were likely to continue to grow strongly, Menon added.

Singapore share prices shrugged off the GDP forecast downgrade, with investors getting encouragement from a surprise rebound in US retail sales.

The Straits Times Index closed up 96.05 points, or 3.26 percent, at 3,045.59 3,047.17.

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