Singapore's economy slowed sharply in the second quarter as industrial production fell due partly to global supply chain disruptions caused by Japan's quake, analysts said Thursday.
Softer spending in the United States and other major economies as governments wound down stimulus packages implemented during the global recession also led to easing demand for Singapore exports, they said.
The Ministry of Trade and Industry said second-quarter gross domestic product (GDP) grew an annual 0.5 percent, compared with 9.3 percent in the previous quarter.
The ministry said the manufacturing sector shrank 5.5 percent from a year ago as key export markets the United States and Europe suffer renewed economic troubles.
"The Japan twin disasters disrupted the global supply chain of which Singapore is a part in April and May," said Song Seng Wun, a Singapore-based regional economist with financial group CIMB, referring to the giant quake and tsunami that struck the country on March 11.
This affected exports of a wide range of goods from auto parts, electronics components to paint pigments, he added.
The trade ministry said the moderation cut across all sectors of the economy, including construction and biomedicals.
Analysts however said orders are expected to ramp up in the second half of the year ahead of the year-end holidays, and were confident the government's official growth target of 5-7 percent this year will be achieved.
The economy expanded 14.5 percent in 2010.
Analysts also said the the Monetary Authority of Singapore was unlikely to alter its monetary policy during the next scheduled review in October, which means the Singapore dollar will be allowed to remain strong.
Unlike other countries which use interest rates, Singapore relies on the exchange rate to conduct its monetary policy because economic growth is driven primarily by external trade.
"Overall, with risk to economic growth rising and inflation having passed its peak and will likely ease going forward, (the) chance of further tightening of the exchange rate policy has reduced significantly," DBS Bank economists said in a commentary.
Vishnu Varathan, a Singapore-based regional economist with Capital Economics consultancy, said steady growth in China and India was expected to provide an extra pillar of support for the city-state, despite concerns about the potential fallout from the eurozone debt crisis and weak US economy.
While the US and Europe are key export markets for Singapore, regional giants China and India have in recent years been major trade stimulants for Asia.
And Varathan said despite grumbles that Beijing and New Delhi's monetary policies -- aimed at reining in inflation -- may put the brakes on their economies, he was confident they would not face a "hard landing".
"These two economies will cool nicely and that will translate into decent intra-regional support and there is not much that we can do about what is going on in the US and Europe."
But CIMB's Song sounded a cautious note.
"There are many external factors that can exert pressure on confidence," he said, citing the escalating eurozone debt crisis and protracted wrangling over a deal that will allow the US to raise its debt ceiling.