Economists said Singapore is set to become this year’s fastest-growing economy in the world, following the government’s upgrade of the annual growth forecast to 13-15 percent.
The new estimate, up from the previous prediction of a 7.0-9.0 percent expansion, exceeds forecasts of about ten percent growth in regional powerhouse China and comes in spite of fears over the European and US economies.
"Singapore will be the strongest-growing economy in Asia for the year and probably in the world," said Song Seng Wun, a Singapore-based regional economist at CIMB Research.
He added that the new growth estimate was “realistic” in spite of a projected slowdown in H2 because gross domestic product (GDP) expansion in H1 was likely to be 18 percent.
Other Asian export-oriented economies are also likely to see growth this year, but Singapore has other growth drivers, such as its financial services and tourism industry, he said.
David Cohen, a regional economist at research house Action Economics, said Singapore will “probably come on top of the charts worldwide”.
However, Cohen said it should be seen in the context of the country’s GDP contraction of 1.3 percent in 2009 because of the global recession, while China’s GDP increased at about 9.0 percent last year.
The strong Q2 GDP figures "reinforce the view that fears from the eurozone crisis may be exaggerated", said DBS Bank.
As the country is the “most sensitive to headwinds in the global economy, this is good news for investors looking to put on risk again,” it added.
“Hence, sentiment should remain constructive, not only for the Singapore dollar, but also other Asia ex-Japan currencies and commodity currencies linked to a positive growth outlook.”
The strong demand for manufactured exports in Singapore, particularly semiconductors and biomedical products, led to the sharp increase in the GDP growth forecast for the trade-driven island.
Growth in Q1 was 16.9 percent and 19.3 percent in Q2, said the Ministry of Trade and Industry (MTI).
Singapore’s exports are now likely to grow by 17-19 percent this year, an increase from the earlier forecast of 15-17 percent, with the robust trade with Asian economies as a major factor for the export forecasts’ upgrade.
Growth would moderate in H2 this year due to problems in two major markets for Singapore’s exports, said MTI.
"In the US, there are now signs of a slowdown in the labour market following the recovery earlier in the year. This has affected consumer confidence. In the EU, domestic demand remains depressed as concerns over the sovereign debt crisis persist."
While a slowdown in the global economy is expected, Cohen said he does not expect another recession. “So the Singapore government’s projection for full-year growth seems within reach,” said Mr. Cohen.