Against the backdrop of a still-hesitant and uneven recovery across key trading partners and domestic supply-side constraints, the Singapore economy expanded by a slower 2.9% in 2014, compared with 4.4% in the preceding year (see Chart 1).

The downshift in growth in 2014 was largely on account of a moderation in the external-oriented services sectors. Weakness in the commodity space, coupled with muted global trade flows, led to a step-down in wholesale trade activities last year. Financial services also recorded a more modest outturn as loan growth to East Asia and the domestic trade-related industries abated, although the sector continued to outperform the rest of the economy. Industries dependent on domestic demand likewise slowed, in part due to weaker private sector construction and softer demand for real estate business services. In comparison, the manufacturing sector turned in a stronger performance in 2014, supported largely by the pharmaceutical and medical technology segments.

Growth momentum eased slightly at the start of this year, with the Singapore economy recording an expansion of 3.2% q-o-q SAAR in Q1 2015, from 4.9% in the preceding quarter. The slower pace largely reflected a cyclical pullback in the financial services sector, following an exceptionally strong outturn in Q4 2014. Despite a flat manufacturing performance, traderelated services saw an uptick in activity. This, to some extent, was a result of healthy growth in electronics re-exports, given Singapore's comparative advantage as a distribution and logistics hub that allowed it to leverage the wave of global demand for new mobile computing devices produced in the region. A rebound in residential building activities shored up growth in the domestic-oriented sectors.

Looking ahead, gradual improvements in the global economy, alongside the continued expansion of the global IT industry, should provide some support to Singapore's external-oriented industries. Domestic-oriented sectors will remain resilient, underpinned by steady demand for services, such as healthcare and education. Nonetheless, growth is anticipated to be moderate and uneven in light of the slowdown in China, weakness in some oil-related segments amid the global downshift in oil and gas exploration and production, as well as domestic resource constraints. Some sectors will face continued margin pressures amid firm business costs. For 2015, the Singapore economy is projected to expand by 2-4%. Over the medium term, restructuring should enable the economy to enjoy healthy and sustained growth through higher productivity.