July 10 (Bloomberg) -- Singapore's economy expanded at the slowest pace in five years in the second quarter, as manufacturers cut production amid declining orders and accelerating inflation crimped spending.

Gross domestic product increased 1.9 percent from a year earlier, after expanding a revised 6.9 percent in the first three months of 2008, the trade ministry said in a statement today. That was lower than the 3.2 percent median estimate of 18 economists in a Bloomberg News survey.

A slowdown in the U.S., Asia's largest export market, has hurt demand for Chartered Semiconduct Manufacturing Ltd chips and Hyundai Motor Co. cars, damping growth in the region. Surging fuel and food costs, which have pushed Singapore's inflation to a 26-year high, have also left consumers with less to spend.

``Inflation expectations may take the wind out of the still-resilient Asian economies,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte. in Singapore. ``If more is spent on food, there will be less for other economic activities.''

Asian policy makers are predicting expansion this year will be at the lower end of their targets or are reducing growth forecasts as they increase estimates for inflation.

The Bank of Korea last week raised its 2008 inflation forecast to 4.8 percent from December's prediction of 3.3 percent. Economic growth will slow to 4.6 percent this year from 5 percent in 2007, it said.

Growth Forecasts

Malaysia's central bank Governor Zeti Akhtar Aziz last month said soaring food and energy prices may hurt household spending and damp economic growth, slowing expansion in 2008 to below its March forecast of as much as 6 percent. Bank Negara Malaysia plans to revise its estimates for Southeast Asia's third-largest economy later this month.

Singapore still expects growth this year to be between 4 percent and 6 percent, Finance Minister Tharman Shanmugaratnam said yesterday. It expanded 7.7 percent last year.

``Our export-oriented sectors, especially manufacturing, are being hit by deteriorating economic conditions in the U.S. and Europe,'' Shanmugaratnam said. ``This is likely to continue in the coming months and the weakness in manufacturing will act as a drag on overall GDP growth.''

Singapore's economy shrank an annualized 6.6 percent in the three months to June, contracting for the second time in three quarters. It grew a revised 15.6 percent in the first quarter.

Manufacturing Shrinks

The island's manufacturing industry contracted 5.6 percent last quarter from a year earlier, compared with a revised 12.7 percent gain in the first three months of the year.

Singapore's electronics exports have declined for 16 consecutive months, and pharmaceutical exports slumped in April and May. Electronics account for about 30 percent of Singapore's manufacturing and drugs make up around 22 percent.

The island's industrial output tends to fluctuate from month to month because of swings in production by drug companies which shut plants for cleaning before making different products.

Singapore's trade promotion body has lowered its forecast for export growth this year to between 2 percent and 4 percent, from an earlier range of 4 percent to 6 percent.

Services climbed 6.9 percent in the second quarter from a year earlier, while the construction industry grew 15.2 percent, according to today's report.

Property Boom

The island's property market has slowed and the proportion of unsold new private homes rose in the second quarter, according to government data.

Singapore's private home prices rose 0.4 percent in the three months to June, the slowest pace in almost four years, the government said on July 1, signaling a real-estate boom that began in 2004 may be coming to an end.

The growth figures today are computed from data for April and May. Revised numbers will be released next month.