City-state’s growth slowed sharply in fourth quarter, clouding outlook for 2023.

The Southeast Asian city-state’s economy grew 3.8 percent last year, preliminary figures from the Ministry of Trade and Industry showed on Tuesday. The government had forecast growth of 3.5 percent, down from 7.6 percent in 2021.

Growth, however, was weighed down by a 3.0 percent contraction in the key manufacturing sector in the final three months of the year.

Growth in the fourth quarter came in at 2.2 percent, sharply down from 4.2 percent in July-September, according to the data.

Exports for computer chips and other products have been hit by softer global demand caused by surging inflation and sharp increases in interest rates.

The city-state’s economic performance is often seen as a useful barometer of the global environment because of its reliance on trade with the rest of the world.

IMF Managing Director Kristalina Georgieva on Sunday warned that 2023 will be a “tough year” for the global economy, with one-third of economies expected to be in recession.

Singaporean Prime Minister Lee Hsien Loong warned in his New Year’s message that growth this year is expected to ease to between 0.5 and 2.5 percent.

“The international outlook remains troubled. The Russia-Ukraine conflict continues, with no good outcome in sight,” he said.

Capital Economics said the economy is likely to struggle, which means the Monetary Authority of Singapore is unlikely to tighten monetary policy in 2023.

The central bank tightened its foreign exchange-based monetary policy four times last year to fight rampant inflationary pressures.

“Looking ahead, we think growth is likely to weaken further. Exports are likely to fall further if, as we expect, the global economy enters a recession in 2023,” Capital Economics said.

“Elevated interest rates, declining household savings and high inflation are likely to drag on domestic demand.”