Prime Minister Goh Chok Tong said Southeast Asia's most advanced economy was expected to shrink in 2001 and urged Singaporeans to batten down for a longer downswing.

"We must therefore be prepared for a more prolonged economic downturn in Singapore," Goh said, breaking the grim news at a ceremony honouring model workers on Saturday.

"While the situation is still fluid and dependent on events in the US, we must now expect negative growth this year," he said.

It was the first time a top official in Singapore acknowledged that gross domestic product (GDP) growth will fall below zero this year, from a scorching 9.9 percent expansion in 2000 after the island led the region out of the 1997-98 financial crisis.

Despite earlier projections by private sector economists of a contraction this year, the government had stuck to its latest forecast of 0.5 to 1.5 percent GDP growth.

Singapore fell into recession in the second half due to sharply falling exports and a downturn in global demand for electronics products -- the island-state's main exports.

Goh said the government "is preparing to introduce bold measures to soften the economic impact of the economic slowdown on individuals and businesses" but did not give details.

"We will do everything possible to attract investment, promote enterprise development and help workers stay employable," the prime minister said.

Retrenchments have risen to about 5600 in the June quarter and may exceed 20,000 for the whole year, a large number in a compact labour market.

Key non-oil exports plunged by a record 30 percent from a year earlier in August and the trend is expected to continue until the year's end, analysts said.

As Washington cranked up its mighty military machine to punish the attackers and their financiers, nervousness swept through businesses wordwide, sending stock markets hurtling and the dollar being sold across the board.

"We have very little clue at this point as to how the global economy will respond in the next few months," Goh said. "We are in unchartered waters as the events are still being played out."

Kaan Quan Hon, an economist with Singapore's DBS Bank, said the terrorist attacks in New York and Washington have set back the US economy.

"This will have have implications for Asia including Singapore," he said.

Gary Loh, associate director for sales at UOB Kay Hian Securities said: "In a prolonged conflict, I don't think there's any safe sector. The whole economy will definitely be hit."

Singapore's parliamentary session on September 25 will be dominated by concerns over the impact of a prolonged conflict on the economy, which has a large manufacturing base and is heavily dependent on exports.

Trade Minister George Yeo and Finance Minister Richard Hu are expected to be asked about off-budget measures to help people and businesses cope with the worsening downturn.

The city-state's blue chip firms are not spared.

Singapore Airlines Ltd. (SIA), feeling the sting of the slump in global travel and aviation following the attacks, said Thursday that retrenchment was an option as part of cost-cutting measures.

"Even SIA, which is a world-class airline, is not in a world class industry at this point," said Loh of UOB Kay Hian.

Banking stocks were also hammered in the aftermath of the attacks.

"Overall when you look at the banking sector right now, it's a difficult sector to be in," said Loh, projecting an increase in non-performing loans.

"Even if you are going to lend cheaply, the economy itself is going to cause a lot of companies not to even borrow... Even in terms of loans from consumers, we'll see a slowdown as well," he said.

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