Gross domestic product rose an annualised 0.1% in the three months through June from the previous quarter, when it climbed a revised 1.8%, the trade ministry said in a statement on Tuesday. That compares with a July estimate of a 0.8% contraction and the median forecast in a Bloomberg News survey of 14 economists for a 0.3% drop.
"While global growth in the first quarter of the year turned out weaker than expected, recent incoming data suggest that global economic activities are recovering modestly," the trade ministry said. Externally-oriented sectors such as finance, insurance and wholesale trade are likely to support expansion in the second half, it said.
The export-dependent Southeast Asian nation is set to benefit from a recovery in global growth, which is helping to offset higher business costs as the government pursues a plan to slow the inflow of foreign workers, boost productivity and attract new industries. The United States economy is improving, the euro area will benefit from an accommodative monetary policy and China has taken steps to support expansion, Singapore's trade ministry said.
"Given the slowly improving external demand for both goods and services, led by developed economies, Singapore should be on track to achieve GDP growth of about 3% this year," said Song Seng Wun, a regional economist at CIMB Research in Singapore. Even so, "the still uneven labour productivity performance suggests much work needs to be done."
The Singapore dollar gained as much as 0.1% after the report. It traded little changed at 1.2496 against the US currency as of 8.58am local time.
The economy expanded 2.4% in the second quarter from a year earlier, after growing a revised 4.8% in the previous three months, the trade ministry said on Tuesday. The median estimate in a Bloomberg survey was for a 2.3% gain.
Manufacturing declined 15.2% in the second quarter from the previous three months, compared with a July estimate of a 19.4% contraction. Services rose 4.5% in the same period, while construction gained 0.3%.
The ministry reiterated Prime Minister Lee Hsien Loong's Aug 8 forecast for 2014 growth of 2.5% to 3.5%. Separately, the estimate for non-oil domestic exports was cut to a contraction of between 1% and 2%, from an increase of 1% to 3% previously.
The GDP forecast, which is narrower than an earlier prediction of 2% to 4%, factors in downside risks from the global economy, Ow Foong Pheng, permanent secretary at the trade ministry, told reporters on Tuesday. Singapore will monitor geopolitical risks, she said.
The central bank's policy stance remains appropriate and unchanged, said Jacqueline Loh, deputy managing director at the Monetary Authority of Singapore. The city state, which uses the island’s dollar to manage price pressure, said in April it will maintain a modest and gradual appreciation of the currency.