SINGAPORE, Jan 2: Singapore escaped a technical recession after the economy grew in the fourth quarter thanks to a boost from services, government data showed Wednesday, but prospects for 2013 remain gloomy.

Gross domestic product (GDP) rose by an estimated 1.1 percent year-on-year in the three months to December, from zero growth in the previous quarter, the Ministry of Trade and Industry said.

Analysts feared the economy may have slipped into a technical recession—two successive quarters of contraction—after Prime Minister Lee Hsien Loong said on Monday that GDP rose a mere 1.2 percent for the full year, below the government’s target of 1.5-2.5 percent.

Lee also said GDP was expected to grow just 1.0-3.0 percent in 2013.

“The prospects remain subdued for Singapore even though we averted a technical recession, and the weakness in the manufacturing sector underscores that vulnerability,” said regional economist Song Seng Wun of CIMB Research.

On a quarter-on-quarter basis, the economy expanded by a seasonally adjusted annualised 1.8 percent in the December quarter, reversing a 6.3 percent contraction in the July-September period.

Weakness in the manufacturing sector was a major drag for the economy, but a resilient services sector took up some of the slack.

“Growth picked up on the back of firmer service sector activity, outweighing a contraction in the manufacturing sector led by a weak electronics cluster,” said Leif Eskesen, chief economist for India and Southeast Asia at global banking giant HSBC.

“The positive impetus primarily came from wholesale and retail, finance and insurance, as well as ‘other’ services,” he said in a market commentary.

Nomura Securities said in a market note that manufacturing “remains the weak spot” for the trade-driven economy.

Manufacturing shrank by an annualised 10.8 percent quarter-on-quarter in the October-December period as the European debt crisis and the sluggish US economy dampened global demand for Singapore’s exports, especially electronics.

The sector contracted by 0.2 percent in 2012.

The services sector rebounded strongly in the final three months of last year, rising 7.0 percent quarter-on-quarter from negative growth in the previous two quarters.

Overall, the services sector expanded 1.2 percent in 2012.

Construction contracted 8.9 percent quarter-on-quarter but grew 8.8 percent for the full year.

Despite Singapore escaping a technical recession, there was little to cheer about as growth was expected to be soft in the coming months.

“With global headwinds expected to remain in place, growth is projected to remain muted in the coming quarters and not recover more noticeably until the second half of 2013,” said Eskesen.