SINGAPORE'S economy could shrink next year for the first time since 2001 as the global downturn deepens, warned the Ministry of Trade and Industry (MTI) on Friday.

It said growth could be between -1 to 2 per cent for 2009, with many key sectors such as financial services, property, electronics and tourism suffering 'weak or no growth'.

MTI also lowered its growth forecast for this year for the fourth time, after finalised figures for the third quarter confirmed a technical recession.

Third-quarter GDP shrank 0.6 per cent from the previous year and 6.8 per cent from the previous quarter, slightly worse than forecast.

MTI is now tipping a 2.5 per cent expansion for the full year, down from the previous projection of 3 per cent.

On the bright side, this forecast means that the Government still expects the economy to grow in the fourth quarter, possibly due to drugs output staging a rebound, economists suggested.

Drug makers could also provide a buffer for next year's downturn, with some pharmaceutical plants expected to open by year-end, MTI said.

But the outlook for next year remains 'exceptionally uncertain', added MTI Permanent Secretary Peter Ong.

More retrenchments are expected to take place in coming months, pushing up the unemployment rate next year.

Still, he emphasised that the Government 'remains confident in Singapore's ability to ride out the crisis'. Singapore's 'economic fundamentals remain strong', with the slowdown resulting from the global financial turmoil rather than any internal weakness.

The Government has also lined up a 'strong pipeline of investments' across sectors such as electronics, biomedical sciences and chemicals, which will come online within the next two years and boost Singapore's mid-term growth, Mr Ong said.