Singapore's economy has expanded more than expected in the fourth quarter as the country's manufacturing sector rebounded on higher biomedical and transport engineering output.

The Ministry of Trade and Industry said that the country's gross domestic product (GDP) rose by 1.5 percent year-on-year in the fourth quarter of 2012, beating economists' expectation for a 1.2 percent growth. On a quarter-over-quarter basis, the economy grew by 3.3 percent, compared to 4.6 percent contraction in the third quarter.

The growth in the fourth quarter was primarily due to an annualised 3.1 percent expansion in the manufacturing sector on a quarter-on-quarter basis in comparison to a 16.6 percent contraction in the previous quarter. The sector benefitted from "a rebound in the output of biomedical manufacturing and transport engineering clusters, which more than offset the decline in the output of the electronics cluster," the ministry said.

Singapore's growth in recent years has been hurt by weak manufacturing due to slowdown in the global economy.

In 2012, the economy grew by 1.3 percent compared to a 5.2 percent growth in 2011. The country remains cautiously positive for 2013 and continues to expect a growth rate between 1.0 percent and 3.0 percent, as the global economic growth is likely to remain subdued.

"While downside risks have receded, the global economic outlook is still clouded with uncertainties. In particular, concerns remain over the extent of the fiscal cutback with the budget sequester in the US, as well as the potential flare-up of the debt crisis in the Eurozone," the ministry said.

"Should any of these risks materialise, Singapore's economic growth could come in lower than expected."

Economists at ANZ Research expect Singapore's GDP growth to rebound to 3 percent in 2013, in the upper range of the official forecast.

"Our view is driven by our expectations of cyclical improvements in the US and Chinese economies, assuming no large negative surprises from Europe. Against this global economic backdrop, global trade can recover, leading to better growth in Singapore," the economists said.