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Robust Singapore Q1 GDP surprises, but headwinds loom

People walk past office buildings at the central business district in Singapore in this April 14, 2015 file photo. REUTERS/Edgar Su/Files (Reuters)

By Masayuki Kitano and Saeed Azhar SINGAPORE (Reuters) - Singapore's economy grew faster than estimated in the first quarter, boding well for the city-state's growth outlook this year, but some signs of drag from uneven global growth are emerging. The surprisingly strong first quarter data bolsters the case for the Monetary Authority of Singapore (MAS) to hold off from additional monetary easing later this year, economists said. The Ministry of Trade and Industry on Tuesday maintained its 2015 growth forecast of 2-4 percent, adding that global growth was expected to improve marginally this year from 2014. Still, it warned of "significant uncertainties and downside risks" to the external outlook, including the risk of a sharp correction in China's real estate market and uncertainties over Greece's future in the euro zone. The economy expanded an annualised and seasonally adjusted 3.2 percent in the January-March quarter from the previous three months, the ministry said. That far exceeded the 1.1 percent expansion in the government's advance estimate released in April, and beat a Reuters poll forecast for 1.8 percent growth. "It was the services that really surprised on the upside. I think wholesale and retail was one number that was much stronger than we anticipated," said Chua Hak Bin, head of emerging Asia economics for Bank of America Merrill Lynch in Singapore. "Given that growth seems to be holding up better, MAS is more likely to maintain the current weak appreciation bias despite the low inflation," Chua said. Jacqueline Loh, deputy managing director at MAS, told a news conference the central bank does not see any material change to the inflation outlook and therefore monetary policy remains appropriate. MANUFACTURING STILL WEAK From a year earlier, GDP grew 2.6 percent in the first quarter, better than the advance estimate of 2.1 percent. Annual growth in services-producing industries in the first quarter was revised up to 3.8 percent from the advance estimate of 3.1 percent. Manufacturing activity shrank 2.7 percent, but that was still an upward revision from a 3.4 percent contraction in the advance estimate. Economists said growth could pick up in coming months on an improving U.S. economy and recovering exports. "Exports in Asia have been weak in the first quarter due to mainly transitory factors," and will not remain weak in the second quarter, said Michael Wan, an economist at Credit Suisse, adding that planned fiscal spending may also lift growth. Separate data on Tuesday showed a poor start to the second quarter with manufacturing output in April shrinking 8.7 percent from a year earlier, its worst fall since at least April 2013. The Singapore dollar dropped after the data, hitting a one-month low against the U.S. dollar at 1.3492. (Additional reporting by Saeed Azhar, Aradhana Aravindan, Rou Urn Lee in SINGAPORE and Jongwoo Cheon in SEOUL; Editing by Jacqueline Wong)

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