After falling an annualised 9.9 per cent in the third quarter, gross domestic product rose 0.1 per cent in the fourth quarter of 2002, thanks to a stronger-than-expected performance from the manufacturing sector in December.

For the whole year, Singapore's economy grew by 2.2 per cent, after a 2 per cent contraction in 2001. Singapore's central bank said it expected the economy "to remain sluggish" in the first half of this year, with a firmer recovery after that, if the global economy and electronics industry strengthen.

Prime Minister Goh Chok Tong said in his new year message that economic growth this year should be between 2 per cent and 5 per cent. Because of a likely war against Iraq, he said there were downside risks and a "full recovery" would only occur in 2004.

Singapore emerged from its worst recession since 1964 in the second quarter of last year but global electronics demand - which accounts for over half of its non-oil exports - faltered in the third quarter and the Bali bombing in October further dented sentiment.

Unemployment in the city state hit a 15 year high last year leading the government to stagger a planned rise in consumption taxes, but Mr Goh stressed that while the government is in the midst of restructuring the economy away from its electronics focus, it remained "fundamentally sound".

He noted that Singapore attracted S$9bn in new manufacturing investments and S$2bn of commitments in the service sector last year. In another sign of confidence, the central bank said on Thursday it would not weaken the Singapore dollar as some economists had expected.

It will maintain the "neutral" monetary policy first put into place in July 2001 when Singapore first slipped into recession, meaning it will seek zero appreciation in the local dollar against trading partners' currencies.

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