Official GDP forecast remains at cautious 1-3%

What kept the Singapore government from raising 2012 growth predictions even after the economy bounced back from a qoq contraction?

Despite an encouraging performance from the manufacturing sector due to increasing demand from the US and China markets, Singapore's deeply external economy stands to suffer if the Eurozone fiscal crisis worsens, a nightmare scenario the Ministry of Trade and Industry thought prudent to factor in.

Here's more from MTI:

The global economy started the year on a firmer footing compared to the second half of 2011, with gains in manufacturing activities supported by increased consumer demand in major economies such as the US and China. Alongside the improvement in macroeconomic conditions, Singapore’s growth momentum has picked up, anchored by a strong upturn in the manufacturing sector.

Nevertheless, the recovery in the global economy remains fragile and vulnerable to downside risks. The US labour market remains sluggish with unemployment rate still at a high level. The Eurozone economies will remain weak, as ongoing fiscal austerity and bank deleveraging continue to dampen domestic demand in the region. In Asia, notwithstanding the support from rising domestic demand, growth will be curtailed by lacklustre export performances amidst the external headwinds.

In addition, there is increased uncertainty surrounding the Eurozone’s political climate and fiscal outlook. A disorderly sovereign debt default in the Eurozone cannot be ruled out at this stage. If it materialises, there will be considerable downsides for the global economy and Singapore’s externally oriented industries.

In view of these factors, MTI is maintaining the economic growth forecast for 2012 at 1.0 to 3.0 per cent.