SINGAPORE (Reuters) - Singapore's economic outlook brightened after fourth quarter growth was revised up substantially, with its young biomedicals sector contributing more to the economy than the electronics sector for the first time.
Singapore's GDP expanded at an annualised rate of 3.3 percent in the fourth quarter from the preceding three months, turning around from the 4.6 percent contraction in the third quarter, according to revised seasonally adjusted data released by the Ministry of Trade and Industry on Friday.
The government declared it was cautiously positive on the outlook for the city state, a major Asian business and financial centre, which has been grappling with slowing growth amid a sharp downturn in demand for its exports.
Its electronics sector, which has long been the mainstay of its manufacturing industry, has struggled in recent quarters due to depressed overseas demand.
The fourth quarter growth beat the 2.1 percent median forecast of economists polled by Reuters and was higher than the advance estimate of 1.8 percent.
Banks such as ANZ and DBS Group expect Singapore's 2013 growth to come in at the top end or exceed the government's 1-3 percent growth forecast, underpinned by improving global economic conditions.
"The high-beta economy remains very much at the whim of the global economy, which is still not in tip-top shape, notwithstanding the signs of stabilization we have seen in recent months," he said.
The Singapore dollar rose slightly on the stronger-than-expected data, and was recently at 1.2377 to its U.S. counterpart by 0645 GMT, compared with 1.2420 before the report.
DBS's Seah said that although the electronics sector will probably remain sluggish in coming months, pharmaceutical and transport engineering segments will lead an improvement in manufacturing. He expects the Singapore economy will grow by 3.2 percent this year.
"The return in investor confidence as well as stronger intra-regional trade will provide the necessary impetus for growth in (services) in the coming quarters," he added.
Manufacturing grew 1.9 percent, after shrinking 13.6 percent contraction in the third quarter, while services expanded 2.5 percent following the growth of 0.4 percent in the preceding period.
For the whole of 2012, Singapore's economy expanded by 1.3 percent, down from a revised 5.2 percent in 2011.
Ow Foong Pheng, permanent secretary at the Ministry of Trade and Industry (MTI), told reporters the economy ended the year on a firmer footing and that the "key downside risks" for the global economy have receded.
Singapore's relatively young biomedical sector provided the highlight in the latest data. The sector's share of GDP exceeded electronics for a first time last year. Pharmaceuticals and medical devices expanded 9.9 percent and accounted for 25.5 percent of manufacturing GDP, above electronics' share of 25.0 percent.
Singapore's manufacturing and exports data are already very volatile due to pharmaceuticals, which are produced in batches and can vary sharply from month to month.
HSBC's Eskesen cautioned against reading too much into the pharmaceutical sector growth.
"While final GDP were revised up for the quarter and significantly, this to a large extent was driven by the volatile pharmaceutical sector and is, therefore, not an indication of a changing trend," he said.
Singapore made an aggressive push into biomedicals around 15 years ago, offering generous tax breaks to attract manufacturing investments in pharmaceuticals and providing millions of dollars in funding to get top scientists such as Alan Colman, who famously cloned "Dolly" the sheep, to relocate to Singapore.
ANZ bank economist Vincent Conti said electronics could regain its top position this year.
"Once the global demand situation begins to improve, Singapore's electronics sector will surge and make up the loss in share that happened last year," he said, adding the biomedical sector could see some destocking in the near term.
The Economic Development Board (EDB), Singapore's main development agency, remains bullish about the electronics industry.
EDB's deputy director for electronics Terence Gan told Reuters in a recent interview that companies such as Globalfoundries , STATS ChipPAC (SES: S24.SI - news) and Hoya (Other OTC: HOCPY - news) upgraded or expanded their operations in Singapore in 2012.
He said the electronics "industry has the ability to ride on the global economic recovery when it happens."
(Editing by Shri Navaratnam and John O'Callaghan)