SINGAPORE’S ECONOMY is a bellwether for the region’s broader economic health, so there was disappointment last week when the city state reported that GDP contracted in the last quarter by 1.1 per cent.

The economy shrank on the back of lower manufacturing, particularly in the biomedical sector, adding to broader fears of a slowdown in Asia because of Europe’s debt crisis, the sluggish US economy and faltering growth in regional powerhouse China.

Gross domestic product fell an annualised 1.1 per cent in the three months through June from the previous quarter, when it climbed a revised 9.4 per cent, the trade ministry said, falling short of analysts’ expectations of a slight increase.

Trade and Industry Minister Lim Hng Kiang described the biomedical sector as “very volatile”, but analysts expect the sector to come back over the year.

“This is part and parcel of our landscape,” he said. “We hope that the biomedical sector will recover for the rest of the year.”

Year-on-year, the economy expanded 1.9 per cent.

Exports fell in May from the previous month, and the contraction could put pressure on the central bank to ease monetary policy.

The Asian Development Bank cut its growth forecast for the region.

Manufacturing makes up more than a quarter of Singapore’s output.

The government is forecasting growth of between one per cent and three per cent this year, down from a 4.9 per cent rise last year and 14.8 per cent growth in 2010.

Manufacturing fell six per cent in the last quarter from the previous three months, compared with a 20.9 per cent surge in the first quarter.

Construction rose 0.3 per cent, down from a 27.9 per cent gain, while services grew 0.4 per cent, down from 2.7 per cent in the previous quarter.