Singapore’s economy expanded a tad slower than analyst estimates in the fourth quarter of last year, but that didn’t prevent the island nation rounding out a year of record growth.

 

Singapore’s economy, considered a bellwether for Southeast Asia, expanded at an annualized pace of 6.9% in the October-December period from the previous quarter, rebounding from a third-quarter slump and staying on course to become the second-fastest growing economy in the world after Qatar.

 

The expansion followed a revised contraction of 18.9% in the third quarter in seasonally adjusted, annualized terms, the Ministry of Trade and Industry said Monday. The growth was slower than expected. The median forecast in a Dow Jones Newswires poll of 11 economists was for a 9.2% expansion.

 

The rebound in the fourth quarter capped a strong year for the small, trade-dependent economy, which roared back to life from a downturn in 2009 when the global financial crisis sent worldwide trade into a tailspin. The recovery last year, powered by strong demand in China, started to stoke inflationary pressures, prompting the central bank to tighten policy by guiding the Singapore dollar higher.

 

In 2011, inflation across the region will pose a major challenge to Asian policy makers, economists say. The Monetary Authority of Singapore is likely to wait for more data and keep a close eye on inflation ahead of its next review of monetary policy in April.

 

“April is a long time away and a lot will happen between now and then. But it’s clear that inflation will be a much bigger focus for the MAS,” said Credit Suisse economist Robert Prior-Wandesforde after the data were released.

 

The central bank said in October it would steepen and widen the local dollar’s trading band while continuing to seek a "modest and gradual appreciation." The MAS, which uses exchange rates rather than interest rates as its main tool to manage inflation, guides the Singapore dollar against a basket of currencies within an undisclosed band. The U.S. dollar fell 8.5% against the Singapore unit in 2010.