Singapore's third

Roslan Rahman | AFP | Getty Images

Singapore's economy grew at a slower-than-expected pace in the third quarter, data on Tuesday showed, adding to growing concerns over the outlook of the wealth city state.

The economy expanded 2.4 percent in the third quarter from the year-ago period, missing a Reuters forecast for a 2.8 percent gain and following a rise of 2.4 percent rise in the previous quarter.

Quarter-on-quarter, gross domestic product (GDP) grew 1.2 percent compared with expectations for a 1.8 percent rise and after the 0.1 percent expansion in the second quarter.

Singapore's economy is heavily dependent on demand from overseas markets and sluggish demand from the euro zone will remain a challenge for growth going forward.

'I think that's going to be the concern now because Europe is the biggest export market for Singapore and Europe is struggling. So even though America is doing well, that's a bit of a headwind for Singapore for they would be worried,' said Richard Jerram, chief economist at Bank of Singapore.

Breakdown of the GDP figures showed manufacturing output rising 1.4 percent on year in the third quarter, compared with a 1.5 percent expansion the previous quarter.

Services output grew 2.9 percent on year in the three-month period, while the construction sector expanded 1.4 percent, the data showed.

Meanwhile, the Monetary Authority of Singapore, the city state's central bank, maintained its tight monetary policy, as expected, even as it lowered its core inflation forecast for the year to 2-2.5 percent from 2-3 percent, in its twice-annual assessment of the economy.

'The Singapore economy should expand at a moderate pace in the quarters ahead. Wage inflation is likely to remain relatively firm, and businesses in food-related and some services sectors could further pass on cost increases,' the Monetary Authority of Singapore said in its half-yearly statement.

'Consequently, MAS Core Inflation is projected to stay above its historical average over the next few quarters even as CPI-All Items inflation remains subdued,' it added.

The Singapore dollar traded lower against the U.S. dollar on the news.