Singapore yesterday raised its economic growth targets this year to between 7 percent and 8 percent after second-quarter growth came in better than expected.
However, the government and some analysts cautioned against potential risks in case problems in the US subprime mortgage market spreads into the bigger economy.
GDP in the three months to June rose 8.6 percent over the previous year, better than the initial government estimate of 8.2 percent, the trade ministry said.
Overall, the economy grew 7.6 percent in the first half, it said.
The ministry said it now expects GDP to expand between 7 percent and 8 percent this year instead of between 5 percent and 7 percent. The economy grew 7.9 percent last year, one of the fastest growth rates in Asia.
"Growth has become more broad-based in the second quarter, with the financial services and construction sectors registering double-digit growth and the manufacturing sector remaining healthy despite a slowdown in electronics," the ministry said in a statement.
The ministry said the city-state's trade-reliant economy should benefit from the recovery in the Japanese and EU economies and continued strong growth in China.
While US economic growth has moderated it still "remains intact in the face of problems in the subprime credit markets."
Widespread defaults in US housing loans to borrowers with poor credit records has rattled global financial markets because of fears of a spillover into the wider economy, dragging down consumption and investment.
Singapore's trade ministry said this was the "chief downside risk" to the favorable external outlook.
CIMB-GK Research economist Song Seng Wun, who pegs full-year growth at 7.5 percent, said the government's GDP forecast was on track, but current financial volatility could potentially affect growth in the fourth quarter.
"It is a bit early to tell whether this [credit woes] is contained or the beginning of something more serious as far as the credit markets are concerned," Song said.