The domestic economy grew by 3.9% in 2013, following a modest outturn of 2.5% in the preceding year. Notwithstanding intermittent bouts of volatility, economic activity in Singapore strengthened throughout the course of last year (see Chart 1).

This was largely on account of the pickup in trade-related activities. In particular, Singapore’s electronics production posted its first annual expansion after two consecutive years of contraction, on the back of a turnaround in the global IT cycle. Growth in the manufacturing sector, in turn, led to positive spillovers to the supporting wholesale trade, and transport and storage industries. At the same time, financial services staged a strong rebound amid positive investor sentiment and strong credit demand from the trade- related industries. Meanwhile, domestic demand remained resilient. Notably, the construction sector recorded robust growth, boosted by a steady roll- out of commercial and residential projects.

Nonetheless, growth momentum eased at the start of this year with the Singapore economy recording a sequential expansion of 2.3% q-o-q SAAR in Q1 2014, following a 6.9% increase in the preceding quarter. Despite the stellar outturn in the manufacturing sector, most of the trade- related industries saw some pullback in Q1 2014. In particular, Singapore’s re-exports to the US and China contracted amid a slowdown in both economies early this year. Meanwhile, the sentiment-sensitive financial services segment experienced some headwinds as global financial markets retracted on a resurgence of jitters over possible risk events, such as a sharper-than- expected slowdown in China, and an escalation of conflict in Ukraine. Concurrently, sectors dependent on domestic demand slowed, partly reflecting weaker private sector construction activities and softer demand for real estate business services.

For the rest of the year, gradual improvements in the external environment, together with a sustained recovery in the global IT industry, should provide some support to Singapore’s external-oriented industries. Meanwhile, the domestic-oriented sectors are expected to remain resilient over the course of the year, buttressed by public infrastructure expansions in the construction, education and healthcare industries. Nonetheless, while cyclical factors are broadly supportive of growth this year, the effects of the ongoing restructuring could dampen growth. This is because pressures from resource constraints continue to be binding, given slowing resident labour force growth and foreign worker inflows. Firms could also experience compressed profit margins in this transitional period, even as they undertake the necessary investments in capital, improve work processes and augment the skill sets of workers. On balance, the Singapore economy is projected to expand by 2–4% this year.