Fingers crossed: Economy forecast to expand by 5 to 6%

That is if incoming external indicators don’t take a significant turn for the worse.

A brief by the Monetary Authority of Singapore said Singapore’s GDP growth is expected to come in at 5-6% for the year as a whole, with a modest increase in economic activity in the second half compared to the first half of 2011.

“Growth will be supported by services which are driven largely by Asian demand, such as in the tourism industry, even as activity in the manufacturing and trade-related sectors remains sluggish. While global market volatility will weigh on the sentiment-sensitive industries, the financial sector should see firm growth for the rest of 2011, anchored by domestic lending activities,” said MAS.

However, the brief noted, “If incoming external indicators take a significant turn for the worse, overall activity in the Singapore economy will slow further.”

MAS said:

Mirroring the heightened uncertainty in the external environment, activity in the Singapore economy slowed considerably in Q2, following the surge in Q1. Activity in the global IT industry also faltered, leading to a weak showing in the domestic manufacturing and trade-related sectors.

Going into the third quarter of 2011, the recent spate of negative events, including the historic downgrade of US sovereign credit and European debt woes, has caused fresh jitters in global financial markets. Weak growth prospects in the developed economies, concerns about fiscal sustainability in the Eurozone and inflationary pressures in the region continue to cloud the near-term outlook. Singapore’s economic performance in the second half of the year will be capped by these external developments. In particular, the trade-related sectors, which account for almost half of Singapore’s GDP, will be most vulnerable to further weakness. However, resilient Asian demand should partially offset these headwinds from the industrialised countries in the next two quarters.

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