TWO main sectors, manufacturing and services, helped lift Singapore out of its most severe recession in history.

Manufacturing registered an impressive 26.6 per cent growth and services 11 per cent in the third quarter on an annualised, seasonally-adjusted basis.

The economy is expected to expand 3 to 5 per cent next year.

It is expected to shrink between 2 and 2.5 per cent this year.

Data from the Ministry of Trade and Industry (MTI) showed gross domestic product (GDP) rose 14.2 per cent in the July-September period after a 21.7 per cent surge in the previous three-month period.

"Effectively, the recession in Singapore is over," said Mr Ravi Menon, the permanent secretary of MTI, yesterday.

Year-on-year, Singapore's GDP grew 0.6 per cent in the third quarter, compared with a 3.3 per cent contraction in the April-June period, the MTI said. A recession is technically deemed over after two successive periods of quarter-on-quarter growth.

Growth in the third quarter was powered by the manufacturing sector, the ministry said.

However, economists said that growth - and inflation - next year could prove higher than expected.

This, in turn, increases the chances of a tightening next April that would help head off price pressures and keep Singapore an attractive place for private-bank investors to park funds.

"We expect the Government to revise up next year's growth projections significantly over time," said Mr Robert Prior-Wandesforde, senior Asian economist at HSBC.

"And, although not a high-conviction call at this stage, the Monetary Authority of Singapore will probably return to a policy of modest and gradual currency appreciation in April next year," he added.

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