SINGAPORE'S economy is expected to shrink by between 6.0 and 9.0 percent in 2009, the government said Tuesday.

The new forecast is a sharp downgrade from the previous estimate of a contraction of between 2.0 and 5.0 per cent and follows fresh data showing a sharp deceleration in the first quarter.

The Ministry of Trade and Industry (MTI) said preliminary data showed gross domestic product (GDP) shrank 11.5 per cent in the first quarter from a year ago, far worse than the 4.2 per cent contraction in the preceding quarter.

'MTI's earlier forecast had factored in the likelihood of a weak first quarter, but the advance estimates indicate that actual GDP growth will undershoot earlier expectations by a significant margin,' it added.

The revised GDP forecast was made after the trade-dependent city state's key exports, known as non-oil domestic exports (NODX), fell by an estimated 17 per cent in March from a year ago.

The Monetary Authority of Singapore (MAS) also eased monetary policy for the second time since 2003, by shifting the secret trade-weighted trading band for its currency lower in what is effectively a one-off devaluation.

The MAS sets policy by managing the Singapore dollar's nominal effective exchange rate - its relative value compared with a basket of currencies of trading partners - instead of setting interest rates.

David Cohen, Action Economics felt that things will get better after this bottoming out, 'The 17 per cent drop in trade is a sign that exports are bottoming up, and consistent with the picture we've seen in major regional exporters like South Korea and Taiwan. China has also turned around. But GDP was at the weaker end of expectations, worse than most people expected.

'Taken together, it seems that the first quarter will be the worst and things will start to get better. The trade data is certainly encouraging.'

But others like Song Send Wun, Economist at CIMB, felt that we have not seen bottom yet, 'Given all these horrendous numbers, this policy change is not a big surprise. It is reflecting the free fall in external demand.

'Although we are seeing some faint heartbeats in the Singapore economy with better-than-expected March NODX numbers, we have not seen the bottom yet. With inflation easing and external demand fragile, the shift in policy remains appropriate.

'Our currency strategist is looking at the Singapore dollar to weaken to 1.60 by the end of the year.'