HONG KONG (MarketWatch) -- Singapore's economy contracted at an annualized 16.4% in the October-to-December quarter -- its sharpest pace of contraction in 33 years, according to revised figures released by the Ministry of Trade and Industry Thursday.

For the whole of 2008, the economy grew 1.1%, after expanding 7.8% in the preceding year, the ministry said Thursday in the 169-page Economic Survey of Singapore report.

The manufacturing sector declined 10.7% in the fourth quarter year-over-year, while the services sector was down 1.3%. Initial estimates published in January were for a 16.9% annualized contraction in the fourth quarter.

"It may be the country in Asia whose economy will contract the most this year," said Dariusz Kowalczyk, chief investment strategist with SJS Seymour in Hong Kong.

Singapore's main share Straits Times Index was down 0.2% to 1,614.26 in midsession trade Thursday. The share-measure is down 2.3% during the past three months and off 47% from its level a year earlier.

Singapore's trade ministry forecasts the economy will shrink between 2% to 5% in 2009.

A contraction at the upper end of estimates would outpace an expected 4% decline in gross domestic product in Japan as the biggest among industrialized countries in Asia this year.

"Singapore's GDP growth prospects appear weak in 2009 on account of the pessimistic global economic outlook," the trade ministry said in the report.

The downturn is exacerbated by Singapore's open economy and an industrial policy that sought to set manufacturing as a key pillar of the economy.

"The government of Singapore has tried to diversify their economy away from trade," said Kowalczyk, noting the government has set out to promote the electronics, pharmaceutical and chemical sectors.

Still, the structure of Singapore's economy would see it among the first to suffer on the downside, but be among the first to recover when global trade picks up, Kowalczyk said.

Credit Suisse forecast the ongoing slump could result in a massive exodus of foreign workers, leading to an overall drop in population of 160,000 this year. Singapore's population will shrink to 4.68 million, according to Credit Suisse estimates.

"The potential drop in employment and population would have far reaching implications for the economy," Credit Suisse analysts wrote in a research note.

The broker advised investors to stay away from shares of property, banking and consumer companies.

SJS Seymour's Kowalczyk said the residential and commercial real estate markets were particularly vulnerable as the recession deepens.

"Pretty much on all fronts except government spending, the economy will be facing severe headwinds," Kowalczyk said.