The expansion reported by the Trade Ministry compared with a 2.4 percent estimate on Dec 31. The government said the economy grew 8.4 percent last year and kept its forecast for growth of between 3 percent and 5 percent in 2005.

Singapore has offered tax breaks to encourage drug makers like Pfizer to increase capacity as the island-state seeks to cut its reliance on electronics manufacturing.

The strategy may not keep growth from slowing this year as global demand for semiconductors slumps, said Nigel Rendell, an economist at CLSA Singapore.

"It's really down to pharmaceuticals," said Rendell. "Monthly pharmaceuticals output tends to fluctuate sharply and won't compensate for the slower electronics demand this year."

Asian growth is easing as global demand cools. Japan's economy fell into recession last year for the fourth time in 13 years as exports faltered, the government said Wednesday.

"While electronics production in Singapore grew strongly in 2004, growth will moderate this year," Friedrich Wu, chief economist at the Trade Ministry, said at a briefing.

Drug production, which accounts for about 16 percent of manufacturing in Singapore, lifted total factory output by 19.4 percent in December. Drug production rose 30 percent last year, outpacing the 14 percent gain in manufacturing overall.

Pharmaceutical makers periodically switch production to a different chemical and shut plants for cleaning. Because of the small number of factories in Singapore, including those of Schering-Plough and Merck, shutdowns and expansions cause swings in output.

Singapore's exports unexpectedly shrank in January as electronics makers, including Seagate Technology, shipped fewer disk drives and mobile phones, offsetting gains in drug exports.

Excluding oil, exports shrank a seasonally adjusted 0.6 percent from December, after gaining a revised 0.2 percent that month, International Enterprise Singapore, the trade promotion body, said in a report Thursday.

Exports this year may expand at less than half of the 17 percent pace of last year, International Enterprise Singapore said in January. The Asian Development Bank in December cut its 2005 growth forecast for the region excluding Japan to 6.3 percent from 6.7 percent. It predicted an increase of 7.2 percent for 2004.

From a year earlier, Singapore's $91 billion economy grew a revised 6.5 percent in the fourth quarter.

Manufacturing, which accounts for a quarter of the economy, rose 14.1 percent in the fourth quarter from a year earlier, more than the initial estimate of a 9.5 percent gain, the report Thursday said. In 2004, output gained 13.9 percent.

Makers of electronics goods, which account for almost a third of production and half the nation's exports, are trimming output of computer chips and printers as customers in Europe and the United States cut stockpiles, according to some executives.

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