Gross domestic product (SGDYTY) fell an annualized 4.9 percent in the fourth quarter of 2011 from the previous three months, when it climbed a revised 1.5 percent, the trade ministry said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 5 percent contraction. The economy grew 4.8 percent in 2011 and may expand 1 percent to 3 percent this year, Prime Minister Lee Hsien Loong said Dec. 31.

A faltering global economy has eroded demand for goods made on the island, forcing policy makers to juggle protecting growth with containing inflation in the city of 5.2 million people. The nation’s currency fell 3.2 percent in the past two months after the Monetary Authority of Singapore, which uses the exchange rate to manage inflation, eased its policy stance last quarter while the government took steps to cool the property market.

“Manufacturing and services will continue to be quite weak, and won’t prove supportive of the economy,” said Chow Penn Nee, an economist at United Overseas Bank Ltd. in Singapore. “We may see a technical recession later this year. There is a possibility of more easing in April” when the central bank next reviews its monetary policy stance, she said.

The Singapore dollar, the fourth-worst performer in the past six months among 10 Asian currencies tracked by Bloomberg, rose 0.3 percent to S$1.2936 against its U.S. counterpart at 8:32 a.m. local time today. It weakened about 5.3 percent in the second half of 2011.

Rate Cuts

Asian nations from Thailand to Indonesia have reduced interest rates to shield their economies from the protracted European sovereign-debt crisis. Taiwan’s central bank left borrowing costs unchanged for a second straight quarter last week, while the People’s Bank of China said it will maintain a “prudent” monetary stance and “ensure the continuity and stability” of policy in 2012.

Singapore’s growth will “inevitably be affected” this year in a “difficult” global economy, Prime Minister Lee said in a New Year message.

“The external environment is uncertain,” Lee said Dec. 31. “Debt problems in Europe are far from solved.”

The MSCI Asia Pacific Index (MXAP) of stocks slumped about 17 percent last year, halting a two-year rally in equities. Singapore’s benchmark Straits Times Index (FSSTI) dropped by a similar amount in the same period, led by Neptune Orient Lines (NOL) Ltd., Southeast Asia’s biggest container carrier, commodity-trading company Noble Group Ltd. and CapitaMalls Asia Ltd. (CMA), an owner of shopping malls across the region.

Inflation Forecast

GDP increased 3.6 percent from a year earlier last quarter, after rising a revised 5.9 percent the previous three months. The expansion was slower than the median forecast of 4.3 percent in a Bloomberg survey.

The island’s inflation was 5.7 percent in November, matching the fastest pace since 2008.Consumer-price gains (SICPIYOY) are forecast by the monetary authority to average 2.5 percent to 3.5 percent in 2012 from about 5 percent last year.

The central bank had tightened monetary policy at each of the three half-yearly reviews before its October decision to slow gains in the currency while continuing with a modest and gradual appreciation. It guides the local dollar against a basket of currencies within an undisclosed band, and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.

Container Port

Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait and home to the world’s second- busiest container port, has remained vulnerable to fluctuations in overseas demand for manufactured goods even as the government boosts the financial services and tourism industries to cut its reliance on exports.

Manufacturing rose 6.5 percent from a year earlier in the three months ended Dec. 31, after climbing a revised 13.4 percent in the third quarter, the trade ministry said today.

The services industry grew 3.2 percent last quarter from a year earlier, after gaining 3.7 percent in the previous three months. The construction industry expanded 1.7 percent, compared with a revised 0.5 percent increase in the quarter through September.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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