The 2003 Sars outbreak dented Singapore's growth

Gross domestic product contracted by an annualised 2.3% during the three months to September, according to the latest data.

The decline outstripped the more modest 0.8% shrinkage forecast by analysts in a Reuters poll.

However, economists said the city state remained on track to post full-year growth close to 9%.

The economy's poor performance in the July to September period followed four consecutive quarters of double-digit growth as Singapore bounced back strongly from the effects of the deadly Sars virus last year.

Blip

"It's probably just a temporary softness," said Claudio Piron, Asian currency strategist at JP Morgan Chase.

"GDP is on the softer side, but we have been growing at a very, very strong pace for some time."

The Monetary Authority of Singapore, the city state's central bank, said it would maintain its bias in favour of raising interest rates.

The MAS last raised interest rates in April.

The summer contraction reflected weaker manufacturing output and the impact of higher energy costs, fuelled by soaring oil prices.

US light sweet crude oil was changing hands at $53.15 a barrel in late Asian trade on Monday, just 16 cents shy of the record $53.31 seen on Friday.

US oil prices have risen by more than 60% since the start of the year, lifted by soaring demand from the US and China, and recurring worries over supply disruptions in producer countries.