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Singapore’s economy probably contracted in the fourth quarter as manufacturing slumped, increasing pressure on the island’s policy makers to stimulate growth even as inflation accelerates.

Gross domestic product (SGDYTY) probably dropped an annualized 5 percent in the three months through December from the previous quarter, when it rose 1.9 percent, according to the median (SGAVYOY) of 11 estimates in a Bloomberg News survey. The report is scheduled for release at 8 a.m. on Jan. 3.

Singapore forecasts economic expansion will moderate next year as a faltering global recovery weighs on demand for goods and services. The island’s exports have dropped even after the central bank, which uses the local dollar to manage inflation, moved in October to slow gains in the currency, which has retreated 4.7 percent against the dollar in the past two months.

“Singapore is one of Asia’s most vulnerable economies to a slowdown in global growth,” said Sukhy Ubhi, an economist at Capital Economics Ltd. in London. “The upshot is we think that the Monetary Authority will loosen its policy settings at its next biannual review in April.”

Other Asian nations from Thailand to Indonesia have reduced interest rates to shield their economies from the protracted European debt crisis. Taiwan’s central bank yesterday left borrowing costs unchanged for a second straight quarter after boosting its benchmark earlier in the year to damp inflation.

2012 Outlook
Prime Minister Lee Hsien Loong may give some economic estimates in his annual New Year message tomorrow. The government expects GDP to expand about 5 percent in 2011 and predicts growth to slow to 1 percent to 3 percent in 2012.

The island’s inflation (SICPIYOY) was 5.7 percent in November, matching the fastest pace since 2008. The Monetary Authority of Singapore has joined most other Asian policy makers who have allowed their currencies to depreciate this year to defend exports even as the step boosts inflation risk by making imported goods more costly.

The Singapore dollar weakened about 5.7 percent in the second half of 2011. The Indian rupee lost more than 16 percent in the same period, followed by the South Korean won.

Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait, is among the first countries in the region to report fourth-quarter data. GDP advanced 4.3 percent on a year-on-year basis, according to the median estimate of 13 economists surveyed by Bloomberg News.