SINGAPORE: Singapore on Thursday lowered its economic growth forecast for this year after its economy contracted in the second quarter compared to the previous three months due to rising inflation and tighter monetary policies.

Moves by central banks worldwide to tighten borrowing costs in order to deal with rocketing prices have weighed down on global demand for Singapore’s exports, with the government painting a grim picture for the rest of the year.

Economists often see the performance of the Southeast Asian city-state’s open, trade-driven economy as a barometer for global trading activity.

Singapore’s gross domestic product (GDP) is now projected to expand by 3 percent to 4 percent this year, instead of the 3 percent to 5 percent forecast earlier, the country’s trade ministry said in a statement.

The economy grew by 4.4 percent year on year in the three months to June, faster than the 3.8-percent growth in the first quarter, it added.

But month on month, the economy contracted by 0.2 percent in the most recent quarter, reversing the 0.8-percent expansion in January to March.

“Since May, the global economic environment has deteriorated further,” the ministry said. “Stronger-than-expected inflationary pressures and the more aggressive tightening of monetary policy in response are expected to weigh on growth in major advanced economies, such as the United States and eurozone.”

China, a key market for global exports, “continues to grapple with a deepening property market downturn and recurring domestic Covid-19 outbreaks,” it noted.

“Notwithstanding recent signs of a slight easing in global supply disruptions, the disruptions are likely to persist for the rest of the year as underlying factors such as the Russia-Ukraine conflict and China’s zero-Covid policy remain,” the ministry added.

Growth in the US is expected to slow further in the second half of 2022, and “the persistent disruption in natural gas supplies from Russia could also trigger a sharp slowdown in the eurozone economy,” it warned.

Selena Ling, chief economist at OCBC Bank, said the strong recovery in the aviation and tourism sectors after Singapore lifted coronavirus restrictions should help cushion the effects of slowing global demand.