Singapore on Monday raised 2007 growth targets to 7.5-8.0 percent from 7.0-8.0 percent after the economy grew at a faster pace in the third quarter on the back of a strong performance in the financial and construction sectors.
In the three months to September, gross domestic product (GDP) grew an annual 8.9 percent, faster than the 8.7 percent in the previous quarter, the ministry of trade and industry said. On a seasonally adjusted quarter-on-quarter annualised basis, the economy grew 4.3 percent from 14.5 percent in the June quarter.
While the September quarter was below government estimates of 9.4 percent, the ministry said average growth in the first three quarters of 2007 was 8.1 percent and the momentum was set to continue for the rest of the year. "Economic growth picked up pace in the third quarter," the ministry said in its review of the three months to September.
"The momentum is likely to continue into the last quarter of 2007, albeit at a slower pace," it said, adding the economy was expected to grow "closer to the upper end" of its revised forecasts for 2007. "Economic growth in the US is expected to soften but the EU and Asian economies are expected to hold up."
Singapore's economy, valued at 210 billion Singapore dollars (146 billion US) in 2006, is highly dependent on external trade which means the city-state is vulnerable to any slip-ups in the world's major markets. In the third quarter, growth was powered by financial services which grew nearly 20 percent, making it the best performing industry in the period.
Growth in the sector was broadbased amid strong domestic banking and offshore lending activities, the ministry said. Construction continued its strong rebound with 17.7 percent expansion, underpinned by strong building activity in the industrial and commercial segments.
Manufacturing, which accounts for more than one third of GDP, grew 10.5 percent on the back of robust growth in pharmaceutical and medical technology industries. Analysts expect the economy to grow at the top end of the government's revised forecast but also warned of inflationary pressures.
Song Seng Wun, an economist with CIMB-GK brokerage, is maintaining his forecast of 8.7 percent growth this year, and expects inflation to average 1.9 percent this year compared with his previous estimate of 1.7 percent.
"On inflation, barring a sharp slowdown in the global economy, domestic price pressures are likely to persist due to short-term supply constraints such as a shortage of commercial space and tight labour market conditions," he said.
The government on Monday upped its 2007 inflation forecast to 2.0 percent from 1.5-2.0 percent and for 2008 it has raised the target to 3.5-4.5 percent from 2.0-3.0 percent.
For 2008, the ministry has also raised its growth targets to 4.5-6.5 percent from 4.0-6.0 percent but cautioned external risks such as the troubled US subprime mortgage sector and high energy costs may slow the economy. "If the subprime problems worsen and persist, or if oil prices rise further above current levels, there could be a sharper and more protracted slowdown in the US economy," the ministry said.
"This could drag Singapore's GDP growth towards the lower half of the forecast range," it said. The ministry said the economy was expected to grow at a slower pace in 2008 from this year because of "above-trend growth" in the last four years.