The global financial crisis severely impacted Singapore's exports and financial sector, which were the drivers of strong economic growth prior to 2009. The Singapore economy contracted 3.1% y/y in 2009, though the pace of contraction slowed considerably in Q3, with year-over-year growth resuming in Q4. Q1 2010 saw the official growth rate reach 15.5% y/y, thanks to low base effects but also to a robust rebound in exports, domestic consumption, and financial service activity. While exports to Singapore's largest trading partners - the EU and the U.S. - are likely to slow in H2 2010, exports to Asian neighbors show few signs of abating, particularly in the important electronics sector. However, rising consumer confidence and domestic demand are also expected to erode net exports' contribution to the official GDP growth rate as imports increase. Investment continues to recover as well and could be a major driver of growth in the medium term as the government pursues its goal of boosting labor productivity and shifting the economy to higher value-added sectors. Sound fiscal and current account surpluses, FX reserves and credit ratings also bode well for longer-term growth prospects.
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