SINGAPORE's ongoing economic restructuring efforts toward productivity-led growth will throw up further "transitional frictions" such as higher labour costs, which will weigh on overall growth, said the Monetary Authority of Singapore on Tuesday.

But the central bank added in its twice-yearly macroeconomic review that the Singapore economy should remain on a modest growth trajectory this year, even with the softening in the first quarter and ongoing restructuring.

"Domestic demand in the G3 economies continues to provide the greatest support for Singapore's GDP growth."

The G3 refers to the world's key economies of the United States, Europe and Japan.

The MAS report said that the cyclical recovery in Singapore's economy is expected to continue, supported by "strengthening corporate demand from the G3 economies and steady expansions in the domestic-oriented industries".

But it also cautioned that supply-side constraints due to higher labour costs and tighter profit margins could continue to weigh on growth this year.

Singapore's GDP is tipped to grow between 2 and 4 per cent this year.

The MAS also noted that the more favourable external environment should provide support to Singapore's external-oriented sectors as a whole.

Last year, these industries accounted for about half of GDP growth and are projected to contribute more to growth in 2014, with the trade-related sectors such as manufacturing, wholesale trade and transport and storage accounting for the bulk of the improvement.

In contrast, the financial services sector is likely to see slower growth, following last year's "exceptional performance", it added.

Another key trend highlighted is the rising importance of services to the local economy.

An example pointed out in the report is how the global IT sector is shifting toward services and gradually transforming the landscape of the domestic IT-related businesses.