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Singapore economy outpaces growth expectations

Singapore's economy unexpectedly grew in the second quarter from the quarter before, helped by a strong showing in its financial and insurance sectors.

The city-state expanded 0.1 percent on a quarter-on-quarter annualized basis, above expectations for a 0.1 percent contraction in a Reuters poll and better than the government's advance estimate of a 0.8 percent contraction.

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On an annual basis, the economy expanded 2.4 percent in the second quarter, in line with expectations and better than the government's 2.1 percent initial estimate

The Singapore dollar was holding steady at 1.2498 against the U.S. dollar following the data while Singapore stocks rose 0.3 percent.

Singapore city skyline
Sam Kang Li | Bloomberg | Getty Images
Singapore city skyline

"The upward revision was driven by a smaller contraction in the manufacturing sector than had previously been estimated, suggesting that the loss of capacity in the semiconductors sector cited previously was not as big a drag on growth as had been feared" said Barclays in a note.

The robust growth however, may not be repeated in the second half, the bank noted, maintaining its full-year forecast for the economy at 3.5 percent.

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Prime Minister Lee Hsien Loong said on Friday that the government has narrowed its growth targets for this year to 2.5-3.5 percent from a previous range of 2-4 percent.

"Overall, we expect the pattern of growth to reverse in H2. We expect manufacturing growth to resume as external demand strengthens, with the services industry continuing to cool on the back of a subdued property market and a marked slowdown in tourism inflows," Barclays said.

According to Kunal Ghosh, emerging market portfolio manager at Allianz Global Investors, the GDP revision wasn't a surprise but Singapore's outlook very much depends on external sectors.

"You cannot look at Singapore in isolation. You need to look at it with the developing world, the U.S. and Europe and rest of Asia," said Kunal Ghosh, emerging market portfolio manager at Allianz Global Investors.

"The part which is making us very optimistic is how China is positioning itself after everything. When you want to look at Singapore, you need to look at what's driving Asia and that's China, which is the key to the next 12-18 months and how shares will shape up ahead," he added.

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Singapore has been working to reduce a politically unpopular reliance on foreign labor as part of a push to increase the economy's productivity, but the move has led to a tight labor market, putting upward pressure on wages and raising business-related costs.

Some economists have recently either downgraded or noted downside risks to their full-year growth forecasts, citing factors such as weakness in manufacturing activity and concerns about the impact of the ongoing economic restructuring.