According to economists, the Singapore economy is expected to meet the government's growth targets for the full year, despite a gloomy global outlook.
However, they warned that higher oil prices will drag down growth for the next two quarters. Oil prices have been on the upsurge and are now holding above US$140 a barrel. The uptick is expected to continue, with crude futures pushing past the US$150 threshold within the next few months.
David Cohen, Director of Asian Economic Forecasting, Action Economics, said: "Singapore's economic growth should manage something a little over 5 per cent, which would be slightly above the mid-point of the government's official projection from 4 to 6 per cent.
"That would be respectable by any standards, even if it's slowing from last year's 7.7 per cent growth."
A recent survey by the Monetary Authority of Singapore (MAS) showed that private sector economists are expecting full-year GDP to come in at 5.5 per cent as oil-related sectors continue to boom.
Moreover, domestic demand is expected to provide some support to the service industry, including retail, hotels, restaurants and construction services. Some are also hopeful of a rebound in the biomedical sector.
Robert Prior-Wandesforde, Senior Asian Economist at HSBC, said: "Pharmaceuticals, which was growing for a month or two at a hundred per cent, is now contracting by 50 per cent. That's really swinging this economy around and I think that is why the second quarter could see a negative.
"(But) I would expect that to bounce back, and I think that would be the key reason why the third quarter would be positive. I think Singapore will do okay... I'm still looking for quite an ambitious and quite a positive 6 per cent growth number for 2008."
But the outlook for the manufacturing sector, specifically electronics, is uncertain as inflation is at its highest in 26 years.
Mr Prior-Wandesforde said: "I think inflation will start to come down in the second half of this year in Singapore, but perhaps not as quickly as the central bank would like.
"Therefore, I expect the Monetary Authority of Singapore (MAS) to keep the exchange rate strong here, towards the top of the band as a means of keeping downward pressure on inflation."
Inflation is now at 7.5 per cent, but that is expected to ease in the second half of the year. Nonetheless, to rein in rising costs, economists expect the MAS to keep to its strong Sing dollar policy. - CNA/so
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