Singapore's economic growth is at a 3-year low, and officials are worried about the China slowdown

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Singapore’s economy contracted during the June quarter of 2015 with the government reporting a decline of 4.0%.

The figure, an improvement on the 4.6% decline reported in the initial estimate, saw the annual rate revised higher to 1.8%. Previously growth had been reported as 1.7%.

And the government is concerned about the growing risks from recent developments in China, including the stock market correction.

Despite the upward revision, the annual pace of growth was the slowest seen since the September quarter of 2012.

Here’s the Ministry of Trade and Industry (MTI) on the outlook for growth during the second half of 2015.

“In tandem with the expected gradual pickup in the global economy, externally oriented sectors such as finance & insurance and wholesale trade are likely to support growth in the Singapore economy in the second half of the year. However, sector specific factors could continue to weigh on the growth of some externally-oriented sectors. For instance, sustained low oil prices could continue to dampen growth in the marine & offshore segment. On the other hand, domestically-oriented sectors such as the business services and information & communications sectors are expected to see modest growth. With the labour market expected to remain tight, growth in some labour-intensive sectors such as food services may be weighed down by labour constraints”.

Despite the MTI forecasting a gradual pickup in growth in the six months ahead, it notes the “growth outlook of regional economies has generally softened”.

On China, a harbinger for economic activity in Singapore, the MTI noted that “there is the risk of a sharper-than-expected correction in the real estate market, which could have significant negative spillover effects on construction and real estate investment activities”.

While some disagree with its assessment, the MTI also suggests that “the recent sharp correction in China’s stock market has also heightened the risks to China’s growth”, adding “consumer sentiment and spending could be adversely affected if the correction in the stock market worsens”.

Taking into account the outlook for global growth in the months ahead, the MTI narrowed its 2015 growth forecast to 2-2.5% from 2-4% seen previously.

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