Prime minister Goh Chok Tong said gross domestic product shrank 1.5 per cent in the year to the third quarter of 1998 and was likely to remain weak for the next couple of years.

In full-year 1997, Singapore's GDP expanded by 7.8 per cent.

The economic outlook remained stormy and there was a one-in-five chance of a second financial ``typhoon'' hitting the region, he said, adding that Singapore needed to take drastic measures to deal with the economy's worrisome deceleration.

In September, the jobless rate shot up to 4.5 per cent from just 2.3 per cent in June, preliminary government statistics showed. During Singapore's last recession in March 1986, unemployment hit a high of six per cent.

``With a slump in the region, and the crisis now spreading to other parts of the world, we can expect Singapore economic growth to remain weak for a couple of years,'' Goh said ina speech to the National Trades Union Congress.

Goh recommended a 10 percentage point cut to 10 per cent in employers' contributions to a compulsory pension fund and called on workers to take the salary cuts on the chin. He said the government would set the tone by making sharper reductions in ministers' and senior civil servants' pay.

``We have to reduce sharply the costs of doing business in Singapore. Petrol duties, fees, taxes have all to be cut,'' he said.

This, he said, would help companies compete for market share, hold on to their investments in Singapore and attract new investments.

He said compelling evidence of Singapore's high costs lay in electronics exports to the United States.

``Before the regional crisis broke out, our share of the total US electronics import market was 9.3 per cent in the second quarter of 1997. It has dropped to 7.4 per cent in August 1998,'' Goh said.

He said Malaysia's share of the US electronics market had risen in the same period to 8.2 per cent from 7.1 percent, China's to 10 per cent from 7.2 and Mexico's to 16 per cent from 13.

The electronics sector accounts for 77 per cent of Singapore's manufactured goods exports.

Goh said that while the International Monetary Fund had suggested a turnaround for ailing Asian economies might be in sight next year, he was less sure.

He said the regional economic recovery was complicated by political uncertainties. The Indonesian economy, he said, would not recover until after general elections next May.

``At this stage, no one is certain what the political landscape in Indonesia will be next year,'' he said.

Referring to Malaysia, he said: ``Its economic problems are now aggravated by domestic political problems and increased frictions with its neighbours.''

Malaysia's capital controls and expansionary monetary policy should help it grow next year, but the controls and political developments could keep foreign investors away, he said.

Goh said capital controls and economic isolation were not options forSingapore.

``We have prospered on the basis of plugging into the global economy and we intend to remain plugged in,'' he said.