With sluggish global demand and government restrictions on foreign labor hitting the manufacturing sector, Singapore’s economy contracted in the second quarter of this year, dampening the mood ahead of Singapore’s 50th anniversary celebrations.

The Ministry of Trade and Industry (MTI) showed on Tuesday that the decline in gross domestic product amounted to a 4.6% quarter-on-quarter contraction in April-June. The sharp slump came totally unexpected — the first quarter clocked in a 4.2% expansion. The manufacturing sector contracted 14% on quarter.

With already weak inflation numbers — annual core inflation hit a five year low of 0.1% in May. Some economists believe the poor GDP reading could force the Monetary Authority of Singapore (MAS) to ease its exchange-rate based monetary policy at its October policy review.

Singapore’s economy is heavily trade-reliant. Subsequently, the Singapore dollar crumbled to a one-month low of 1.3622 versus the U.S. dollar soon after …