SINGAPORE - Singapore's economic growth will slow further to 1.8 per cent this year before improving to 2.5 per cent in 2017, the International Monetary Fund said on Tuesday (May 10).

The IMF said Singapore this year will feel the full impact of the slowdown in global trade and capital outflows experienced in 2015, while private investment will be held back by uncertainties on the horizon.

On the positive side, said the lender, lower energy prices should support private consumption, government spending has been rising, and external demand should gradually recover.

But a sharper-than-expected slowdown in global growth "could manifest itself through a significant downshift in China and other large emerging economies as well as weak growth in key advanced economies," it said.

These "external risks could be magnified by, and interact with, domestic vulnerabilities from elevated levels of leverage," the IMF said.

Private economists polled by the Monetary Authority of Singapore (MAS) have lowered their 2016 GDP forecast to 1.9 per cent. Singapore's GDP growth was 2 per cent last year, the weakest pace since 2009, when the economy contracted 1.3 per cent in 2009.

If GDP growth does slip below 2 per cent this year, it will mark a new seven-year low.

The Government has said it expects the economy to grow by 1 to 3 per cent this year.

The IMF also said that MAS took "appropriate action" when it unexpectedly eased monetary policy last month with its switch to a zero appreciation path for the Singapore dollar.

"The MAS should remain vigilant to signs of deflation and adjust its policy settings further if needed," the IMF said.

Consumer prices in Singapore have declined every month since November 2014, the longest slump on record, mostly on lower oil and housing prices.