Economy's surge in Q1 set the stage for broad-based growth in 2011

After the surge in Q1, there could be a temporary pullback in economic activity in Q2, said the MAS.

However, according to the MAS's Economic Policy Group, Macroeconomic Review, the strong performance in Q1 will anchor Singapore's GDP growth for 2011.

In the first quarter of 2011, the domestic economy moved to a more mature stage of recovery after undergoing serveral stages of recovery since its rebound from the trough in Q1 2009. Previous recovery stages was driven by inventory restocking and other transitory factors.

The step-up in economic activity in the first quarter of this year reflected an improvement in end demand in Singapore's key export markets, which in turn provided support to a wide range of industries.

The MAS reiterates that GDP growth for 2011 is more likely to come in at the upper end of the 4-6% forecast.

"Nonetheless, the immediate economic outlook is clouded by uncertainty arising from the spike in oil prices and the calamity in Japan," said the MAS. 'At this stage, EPG's assessment is that there is sufficient momentum for the global economy to grow at a moderate pace in 2011 despite these headwinds."

In the coming quarters, the domestic economy should remain supported by broad-based expansions across most sectors. Price pressures will also begin to ease gradually as the base effects associated with car prices and accommodation costs dissipate.

However, the MAS said that CPI inflation will only moderate gradually to around 3% due to the rising cost of these items and global oil prices in the recent months.

Almost 90% of the CPI inflation will be from the cost of cars, accommodation and commodity-related items.