Singapore may be forced to consider allowing further gains in its currency after a record first-half expansion put the economy in contention for the world’s fastest- growing this year.

The government yesterday reported an 18.1% surge in gross domestic product in the first half, unprecedented in data going back to 1975. Record tourist arrivals are benefitting companies from Singapore Airlines to casino operator Las Vegas Sands Corp., while a two-year-low jobless rate has helped spur a 38% jump in house prices in the past 12 months.

 

The Monetary Authority of Singapore, which revalued the currency in April, may need to repeat the move at the next meeting in October without a cooling in growth, according to HSBC Holdings Plc. The boom is a reflection of a strengthening across Asia that’s prompted policy makers from Thailand to Taiwan, Malaysia and South Korea to boost interest rates in recent weeks.

 

“With numbers like these, there is a growing chance that the MAS will have to tighten the screws again in October,” said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong and a former consultant to the World Bank. Slack in Singapore’s economy “appears to have already vanished over the course of the first half of the year. Domestic demand continues to expand briskly, which should help to offset some of the emerging weakness in export markets.”

 

Singapore’s economy will overheat if the country doesn’t let in more foreign workers to counter a “tight” labor market, Prime Minister Lee Hsien Loong was cited as saying by the Business Times today. The government will introduce more measures to cool rising property prices if necessary, he was cited as saying in Houston, Texas, at the end of a visit.

 

Singapore’s central bank has for three decades used the exchange rate, rather than a benchmark interest rate, as its main tool for achieving price stability. The currency rose as much as 1.2% versus its U.S. counterpart the day of the April announcement, before slipping the following month as Europe’s crisis threatened to slow the global expansion.

 

The Singapore dollar advanced 0.5% to $1.3747 per U.S. dollar at yesterday’s close. The benchmark Straits Times Index of stocks posted its highest close since April, at 2,952.81. Both were little changed at 9:32 a.m. today.

The government raised its full-year GDP growth prediction to as fast as 15% after yesterday’s figures. Private economists also rushed to revise their projections after the numbers, with Goldman Sachs Group Inc. now expecting a 16.5% expansion this year, and Citigroup Inc. predicting 15.5%.

 

Among the 183 economies for which the International Monetary Fund has forecasts, only Qatar is calculated to expand faster than the government’s forecast for Singapore. The IMF expects Qatar, where the GDP was less than half of Singapore’s US$177 billion ($243.7 billion) last year, to grow 18.5% in 2010.

 

Asian economies are leading a global recovery that’s been restrained by subdued expansions in Europe and the U.S., where the jobless rate remains above 9%. Policy makers in the region have moved to withdraw monetary stimulus, with Thailand the latest to join in raising rates yesterday.

 

The MAS in April said it will “re-center the exchange rate policy band at the prevailing level” of the Singapore dollar, shifting to a stronger range for the currency to trade in. The central bank guides the Singapore dollar against a basket of currencies within an undisclosed band.

 

Citigroup analysts said yesterday a further tightening “cannot be ruled out” for October, an assessment echoed by Standard Chartered Plc economists. The analysts, as well as HSBC’s Neumann, expect the central bank to at least maintain its stance for a “modest and gradual appreciation” of the Singapore dollar.

 

Singapore’s growth may slow in the second half as the outlook for global trade is clouded by European budget cuts and a slower-than-forecast American expansion.

 

“I wouldn’t expect an immediate reaction to the strong growth data because the outlook remains clouded and there is likely to be some weakening in the second half,” said Dariusz Kowalczyk, a Hong Kong-based senior economist and strategist at Credit Agricole CIB. He forecasts the currency will end the year at S$1.38 per dollar.

 

Visitor arrivals reached record levels in the six months through May and tourism is likely to continue to increase as millions throng Singapore’s two casinos that opened this year. The island will play host to the inaugural Youth Olympic Games next month, and the Singapore leg of Formula One, the world’s most-watched motor sport, will take place in September.

 

“The continued improvement in the economy has certainly boosted demand for travel on our flights,” said Singapore Airlines spokesman Nicholas Ionides. “Advance bookings are encouraging, especially in business class.”

 

Singapore’s private home prices surpassed the previous all- time peak achieved in 1996, after they rose 5.2% in the second quarter following a 5.6% gain in the first three months of the year, according to data released this month from the Urban Redevelopment Authority.

 

“Jobs are being created, companies are expanding, and there’ll be more demand for real estate, whether it’s for homes or offices,” said Christopher Fossick, managing director for Singapore and Southeast Asia at Jones Lang LaSalle.