In a televised address on the eve of the 40th anniversary of independence, Lee, who is also finance minister, said he expects the next five years to be better than the last five for Singapore.

His gross domestic product growth estimate for 2005 was narrower than the last official forecast of 2.5-4.5 percent, indicating greater confidence that the higher end of the band will be achieved.

"Looking ahead, the signs are favourable. Asia is prospering, and our neighbours in (Southeast Asia) are doing well. We are doing the right things, investing in our people and gearing up to live in a different world," Lee said.

On longer-term issues, Lee expressed concern over the ageing population, the result of longer lifespans and falling birth rates. He said the economy, heavily dependent on manufacturing especially electronics, must diversify.

Economists say Singapore is facing a strong challenge from lower-cost producers like China and India, forcing it to move up the production ladder at the expense of traditional assembly-line jobs.

"We must continue to reinvent ourselves and build new competencies, as we are doing in bio-technology and multimedia," Lee said.

"We must also continue growing our external wing, and seek opportunities in (Southeast Asia), China, India and the Middle East. Then we will create new jobs, and more than make up for the old jobs that are phasing out," he added.

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