Analysts from Credit Suisse and DBS said full-year economic growth is more likely to come in at about 3.5 per cent.
The Ministry of Trade and Industry (MTI) said earlier yesterday that the macroeconomic outlook remains "subdued" and "clouded with significant uncertainties".
The United States' recovery will be curtailed by public- spending cuts and continuing weakness in the housing market, said MTI.
It added that European banks have tightened lending, which will weigh on private-demand growth in the economy.
As a result, MTI chose to stick to a cautiously optimistic full-year growth forecast.
The ministry warned that Singapore's full-year growth could be even lower than expected.
It pointed to key risks such as a disorderly default on sovereign debt in the euro zone and an oil-price shock arising from the escalation of tensions in the Middle East.
Credit Suisse economist Wu Kun Lung said: "The euro zone development remains a key risk, but our base-case scenario is that a break-up of the euro zone can be avoided or postponed beyond 2012."
OCBC economist Selena Ling said a global oil-price shock is "only a tail risk for now".
Still, MTI officials said at a media conference yesterday that Singapore needs to be prepared for "more twists and turns" and "greater volatility" in the external environment, and added that they are "comfortable" with the growth forecast of 1 to 3 per cent.
Singapore may avoid a technical recession - defined as two consecutive quarters of contraction - based on near-term economic indicators and the first trade data of the year, said MTI.
"We've started off with quite good trade numbers and it at least gives us a basis to build on," said Dr Thia Jang Ping, director of the economics division at MTI. "We're hopeful that we can do better."
Total trade and non-oil domestic exports (Nodx) growth for the whole of this year is still expected to fall between 3 and 5 per cent.
Singapore's total trade grew 8 per cent last year, while Nodx climbed 2.2 per cent. Latest figures on Singapore's growth in the final quarter of last year showed that the economy shrank less than forecast.
The 2.5 per cent quarter-on-quarter contraction was much lower that a forecast 4.9 per cent contraction, and helped to push up Singapore's full-year growth.
It translated to a year-on-year expansion of 3.6 per cent in the fourth quarter.
For the whole of last year, the economy expanded by 4.9 per cent, marginally higher than the 4.8 per cent forecast.
This was due mainly to a surge in biomedical manufacturing output, which helped offset a contraction in the electronics cluster and slower growth in both the precision-engineering and chemical clusters last year, said MTI.
"Electronics output declined in Q4 because of weak demand from Europe, while the chemicals industry was disrupted by a fire at Singapore's largest refinery," said Mr Leong Wai Ho, an economist with Barclays Capital.
Meanwhile, the finance and insurance sector saw a 9.1 per cent full-year growth on the back of continued expansion in domestic and offshore lending activities, even as stock-trading activities declined.
The accommodation-and- food services and other services industries, grew by 5.8 and 6.7 per cent respectively, on the back of healthy visitor inflows.
Still, last year's 4.9 per cent total growth represents a sharp moderation from the 14.8 per cent growth recorded in 2010.
DBS economist Irvin Seah said that pockets of risk remain in Europe. "We believe that the current poor economic conditions will prevail for a few more months before a more pronounced pickup in growth momentum materialises in the second half of the year," he said.
"The recovery in the US will likely gain momentum and a more solid resolution may be in sight in the euro zone by then.
"As a result, full year GDP growth in 2012 will likely come in at 3.5 per cent."
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