The SARS virus scared off tourists and dented profits at the country’s flagship Singapore Airlines. Gross domestic product slipped 11.4 percent, the government said on Monday.

“The significant deterioration came on the back of plummeting visitor arrivals as well as the generally cautious consumer sentiments amid the SARS outbreak and the weak labour market,” the Ministry of Trade and Industry (MTI) said in a report.

The outbreak of severe acute respiratory syndrome, which infected 238 people in the city-state, killing 33, reduced tourist numbers to their lowest in more than twenty years, Bloomberg reported.

Forecast lowered

Prime Minister Goh Chok Tong on Friday lowered the government forecast for economic growth for the year to between zero and 1 percent, down from 0.5 percent to 2.5 percent.

Still, growth may pick up as SARS has been controlled and demand from the US for the country’s exports may rise in step with a recovery in the world’s largest economy.

Shipments from the island rose almost twenty percent in June and visitors numbers climbed by 43 percent in July from the previous month, Bloomberg said.

"Certainly, we expect a pick up in global electronics demand and lastly with SARS behind us, the tourism sector and the transport sector should get a lift," MTI deputy secretary for industry Ng Wai Choong told a news conference.

Positive second half

"So overall, the outlook for the second half is positive. We expect the economy to improve quite significantly in the second half."

The contraction in the second quarter meant the economy grew by 1.3 percent growth in the first half, with second half growth forecast for between 1.3 and 3.3 percent.

The MTI confirmed the unemployment rate was unchanged at 4.5 percent in June. Although total employment fell by 24,800 people, the figure remained stagnant because many people gave up looking for work, the MTI said.