The Singapore economy grew faster than expected in the first quarter of this year, but the recent resurgence in Covid-19 infections has cast a shadow over its recovery prospects.

The final estimate for first-quarter growth came in at 1.3 per cent on a yearly basis, compared with an earlier estimate of a 0.2 per cent rise in gross domestic product (GDP), which had contracted 2.4 per cent in the previous quarter, the Ministry of Trade and Industry (MTI) said yesterday.

Analysts said the first-quarter performance would have called for an upgrade of the official forecast.

Instead, the MTI opted to stick with its previous forecast of 4 per cent to 6 per cent growth for the year. This was despite the January to March expansion overshooting the 0.9 per cent growth projected by economists in a Reuters poll.

However, a recent surge in Covid-19 cases at home and abroad has tempered expectations.

The full-year forecast will be reviewed again in August, when there is greater clarity in the global and domestic economic situations, MTI said.

The ministry added that uncertainties have increased, with both upside prospects and downside risks now in play.

Earlier this month, Singapore tightened its safety measures to contain a surprise surge in local community cases of Covid-19. A prolonged tightening could dampen growth, analysts said.

MTI Permanent Secretary Gabriel Lim said external economic conditions have improved since February, mainly owing to upgrades in the growth outlook for economies like the United States.

"At the same time, however, the pandemic continues to disrupt activities in many economies, threatening to undermine any recovery," he said at a press conference.

While the tighter restrictions at home and border controls could hurt segments of the Singapore economy, Mr Lim said the broader economy should still see a recovery this year in tandem with the global economic rebound and further progress in the domestic vaccination programme.

On a quarter-on-quarter seasonally adjusted basis, the economy grew by 3.1 per cent during the first three months of this year, extending the 3.8 per cent expansion in the fourth quarter of last year.

The first-quarter growth came on the back of the manufacturing sector's 10.7 per cent year-on-year expansion.

The electronic, precision engineering and chemical clusters expanded, outweighing declines in transport engineering, general and biomedical manufacturing.

However, the construction sector contracted by 22.7 per cent and the transport and storage sector shrank by 16.5 per cent, compared with the same period last year.

The food and beverage service sector contracted by 9.4 per cent year on year.

MTI said that while it is still possible that the economy will outperform the 4 per cent to 6 per cent growth forecast for this year, there are also significant downside risks, the most important being the trajectory of the pandemic.

"Countries are experiencing recurring waves of infections, with the emergence of more transmissible strains of the virus, the easing of safe management restrictions and delays in vaccinating populations," the ministry said.

The way countries respond to the resurgence would affect their growth, said MTI. And since some of Singapore's major economic partners have been affected, the uncertainty in their outlook will rub off on the Republic.

That was why the MTI decided to maintain its GDP growth forecast for this year at 4 per cent to 6 per cent for now, said Mr Lim.

JP Morgan lowered its growth forecast for the Singapore economy from 7.8 per cent to 7 per cent, while OCBC Bank stuck with its 6 per cent growth prediction.