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Singapore upgrades growth outlook for the full year

Suhaimi Abdullah - Getty Images

Singapore managed to eke out growth in the third quarter, defying initial estimates of a contraction, prompting the government to hike forecasts for the full year.

The city state notched 1.3 percent on-quarter growth, government data showed on Thursday, compared with last month's advance forecast for a 1 percent contraction.

On an annualized basis, the economy grew a revised 5.8 percent in the quarter, also better than the 5.1 percent initial estimate, and is the fastest pace since first quarter of 2011.

(Read more: Singapore's 'volatile' growth could continue for a while)

The government also revised its full year growth forecast to between 3.5 percent and 4 percent, versus its previous projection of 2.5-3.5 percent.

"Externally-oriented sectors such as manufacturing, wholesale trade and transportation and storage are likely to support growth, in line with a slight pickup in the global economy," the Singapore Ministry of trade and Industry said in a statement.

For 2014, the government projects a "modest" 2.4 percent expansion for the economy.

Barclays describes the growth so far this year as "front loaded," and sees slower growth pace for Singapore next year.

(Read more: Household debt: Singapore's 'Achilles heel'?)

"The strong rebound in industrial production year-to-date has yet to be reflected in more sluggish domestic exports," Barclays said in a note. "Hence, manufacturing growth may be fairly subdued in the coming quarters."

The research house also cited the vulnerability of Singapore to the "expected slowdown or sluggishness in some of Asia's larger economies next year (China and Indonesia, for example)."

"Singapore's overall economic exposure to the region may not be as large as to the advanced economies, but linkages are growing and becoming increasingly broad-based," Barclays said.

(Read more: Singapore:the world's first smart nation?)

The eventual higher global interest rates remain a threat to Singapore going forward, the note added.

"These mostly stem from high household leverage amid a "bubbly" property market," said Barclays, and the " rising interest rates look set to coincide with a record increase in housing supply in 2015-16." In September, Barclays warned of a 15-20 percent price correction for the housing market in the next couple of years.

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