Singapore said its economy will next year extend an expansion that has already prompted the central bank to allow the currency to rise to a record to damp inflationary pressures.

The economy will grow 4% to 6% in 2011 after expanding about 15% this year, the trade ministry said in a statement today. The forecast 2010 expansion would be the fastest on record. Gross domestic product shrank at an annualised rate of 18.7% in the third quarter from the previous three months, less than the 19.8% pace initially estimated last month, it said.

Singapore’s economy is in the running to be the world’s fastest-growing this year after a record first-half expansion. Inflation is accelerating even after the central bank said in October it will allow faster currency gains, breaking from Thailand and Malaysia where policy makers have refrained from tightening policy this quarter as global growth slows.

“We believe that the challenge in the next 12 months will be fighting inflation,” Alvin Liew, a Singapore-based economist at Standard Chartered Plc, said before the report. “The faster pace of Singapore dollar appreciation could start being detrimental to exports at some point. A more expensive Singapore dollar may also make Singapore a less attractive tourist destination.”

The island’s currency has gained about 8% against the US dollar this year, and closed at a record $1.2835 on Nov 4. It rose 0.2% to $1.3004 as of 8:24 a.m. The Monetary Authority of Singapore said last month it will steepen and widen the currency’s trading band while continuing to seek a “modest and gradual appreciation.”

Global Recovery
Asian economies have led a global recovery that’s been restrained by subdued expansions in Europe and the US, where the jobless rate remains above 9%. While the Bank of Korea increased interest rates for the second time in 2010 this week after inflation surged past the central bank’s ceiling, joining India and Australia in extending monetary tightening, others have paused.

Malaysia’s central bank last week left borrowing costs unchanged for a second meeting, and Thailand last month refrained from a third straight increase.

Prime Minister Lee Hsien Loong has said the Singapore economy cannot maintain this year’s pace of expansion. The island’s dependence on overseas trade, with non-oil exports equivalent to more than half of GDP, makes it vulnerable to swings in global growth. Non-oil shipments may rise between 23% and 24% in 2010, the government said today.

Irish Risk
The International Monetary Fund last month lowered its 2011 forecast for global growth, citing high unemployment, public debt and fragile banking systems as risks. Ireland’s government is under increasing pressure to tap the European Union’s emergency fund as it struggles to cut its budget deficit and investors grow concerned about the state of the country’s banks.

EU and IMF officials will start scanning the books of Ireland’s debt-laden banks today in Dublin in a prelude to a possible aid package to stem Europe’s widening fiscal crisis.

“The global economy remains vulnerable to several downside risks, notably a reversion to recessionary conditions in the US, and concerns of sovereign debt sustainability in the peripheral EU economies,” the Singapore trade ministry said.