Singapore's corporate, household and financial sectors should survive a global economic slowdown relatively well, though downside risks remain, the de facto central bank said Friday.

Singapore, a regional financial centre whose economy is highly dependent on external trade, became the first Asian country to fall into recession after a US housing crisis led to a global credit crunch and economic slowdown.

"The Singapore economy and financial system have weathered the recent turmoil on global financial markets relatively well," the Monetary Authority of Singapore (MAS) said in an annual report.

The local equity market has fallen by 50 percent in line with a worldwide selloff, and domestic credit conditions have tightened somewhat but the financial system has remained sound, MAS said.

Credit and money markets have continued to function smoothly, though with higher volatility, it added.

"However, the economy has slowed down sharply and is likely to weaken further in the period ahead with adverse implications for the financial system."

Unemployment is expected to rise and incomes moderate while corporate earnings are seen declining, it said.

Barring a deep and prolonged recession, a healthy corporate balance sheet built up during recent years of strong growth, along with government financing schemes, will help companies through the turmoil, it said.

Households also have a relatively strong balance sheet, a positive factor for banks, MAS said.

"Amid the slowdown, banks' asset quality is likely to deteriorate and non-performing loans should rise moderately," the report said, adding loan growth will also moderate and profitability of banks will be constrained.

But it said the local banks, which are well-capitalised, would face risks from a position of strength.

Insurance companies are expected to face lower demand for new policies and continued pressure on investment income, the report said.

"We do not expect these challenges to be severe or to significantly undermine the soundness of Singapore's financial system," MAS said.

It warned that a worse than expected slowdown in the global economy would weaken the corporate and household sectors with resultant impact on financial institutions.

Secondly, a broader loss of confidence in emerging market economies could trigger larger-scale capital outflows from Asia.

"The probability of these downside risks materialising is assessed to be low at the moment," MAS said.