Singapore's economy grew 5.1 per cent on-year in the third quarter, said the Ministry of Trade and Industry in advance estimates, while the Monetary Authority of Singapore has forecast continued economic expansion into 2014.
The market was expecting a 3.8 per cent growth.
OCBC's head of Treasury Research & Strategy, Selena Ling, said: "This was really unexpected, because if you look at August data for industrial production and NODX, actually they were pretty poor...So I suppose either there's expectation that the September data...is going to show a much better pick-up, or that going into fourth quarter, we could see a further acceleration in terms of momentum."
Looking ahead, the Monetary Authority of Singapore said in a separate statement that it expects the economy to continue to expand for the rest of 2013 and into 2014, although some volatility in growth rates is likely.
It added that barring a significant deterioration in global demand conditions, the labour market will remain tight and inflation could rise as firms pass on accumulated costs, with the MAS Core Inflation (excluding private transport and accommodation costs) coming in at 1.8 per cent on-year in August, compared to 1.6 per cent in the first seven months of the year.
In the breakdown given by MTI, the manufacturing sector expanded 4.5 per cent on-year, stronger than the 1.3-per cent growth in the previous quarter. On a quarter-on-quarter basis, the sector declined 3.4 per cent, in contrast to the 33.5-per cent expansion in the preceding quarter.
The construction sector grew 3.6 per cent on-year, slower than the 6.9 per cent growth in the preceding quarter. The sector contracted 8.8 per cent on-quarter, a sharp contrast from the 20.9-per cent growth in the previous quarter.
The services producing industries grew 5.7 per cent on-year, largely similar to the 5.6-per cent growth in the previous quarter. The sector grew 1.0 per cent on-quarter, moderating from the 12.3-per cent expansion in the preceding quarter.
OCBC's Selena said: '"The two engines - both manufacturing and services - appear to be coming back fairly strongly. Construction saw a bit of a step-down from the second quarter pace, but that was really on the back of weak public sector construction activities."
Compared with the previous quarter, Singapore's economy contracted 1.0 per cent on a seasonally adjusted and annualized basis.
Economists on average were expecting a contraction of 4 per cent.
Economists said the contraction signals a slowing momentum in the economy.
Looking ahead, some economists said there's a chance sequential growth could shrink for a second straight quarter, as downside risks remain for Singapore's key trade partners.
The US has yet to solve its fiscal impasse, while domestic demand in Europe is still weak.
Standard Chartered Bank's regional head of research (Southeast Asia) , Edward Lee, said: "We may have another quarter-on-quarter contraction (next quarter). But if we have flat quarter-on-quarter growth, full-year growth is still going to be on the high end of the government's projection of (year-on-year growth of) 2.5% to 3.5%."
"Factoring in a small downward revision in 3Q GDP, we nudge up our 2013 GDP forecast to 3.6%, which still implies technical recession as 4Q GDP would still have to fall 0-1% quarter-on-quarter on a seasonally adjusted annual rate," said Citigroup's chief economist of Singapore & Malaysia, Kit Wei Zheng.
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