THE economy has been expanding at a steady pace so far this year, but spectacular full-year growth rates are unlikely despite a more sanguine global outlook.
Economists say growth will remain tempered by ongoing restructuring and the patchy global recovery, with some warning that Singapore is now less plugged in to global growth than it used to be.
Prime Minister Lee Hsien Loong said in his National Day message last Friday that the economy grew 3.5 per cent in the first half of this year.
He added that it is forecast to grow between 2.5 per cent and 3.5 per cent for the full year, narrowing an earlier projection of 2 per cent to 4 per cent.
The Ministry of Trade and Industry will release final data for the second quarter tomorrow.
Preliminary estimates tipped economic growth at 2.1 per cent in the April to June period.
Sentiment in the manufacturing sector, which makes up about a fifth of the economy, has turned for the better in recent months, said DBS economist Irvin Seah.
Still, it remains to be seen whether this will translate into increased factory output over the rest of the year.
"Our view is that things will run sideways. "Restructuring is impeding manufacturers from competing more effectively and stifling companies' expansion plans," Mr Seah said.
Bank of America Merrill Lynch economist Chua Hak Bin agreed, adding that a tight labour market and rising costs "limit the extent to which we can leverage on upswings in global growth".
While external demand has been improving, the global economic recovery is "still quite patchy", said Dr Chua, noting that June export data across Asia "have been coming in below expectations".
Growth in the service and construction industries is also expected to remain tepid, on the back of a subdued property market and a marked slowdown in tourism inflows.
"We are expecting economic growth to drift along over the rest of the year," added Dr Chua.
A number of economists have warned that rising business costs and a strong currency are hurting Singapore's international competitiveness and holding back economic growth, but Credit Suisse's Mr Michael Wan believes that these fears are overblown.
"The key question is whether Singapore is just losing its export competitiveness, or whether restructuring is forcing companies to move up the value chain," said Mr Wan.
"We believe it is more the latter than the former.
"Rather than rapidly losing competitiveness, we believe that Singapore is going through significant industrial transformation towards services... we believe Singapore can, and will, still benefit from the pickup in global growth."
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