Singapore raised its 2010 GDP forecast and now expects the city-state's economy to grow as much as 6.5 percent after contracting last year.

Gross domestic product will likely expand between 4.5 percent and 6.5 percent this year, up from a previous forecast of between 3 percent and 5 percent, the Trade and Industry Ministry said Friday.

The economy shrank 2 percent last year, the ministry said.

Singapore — which relies on trade, finance and tourism to fuel one of Asia's richest nations — expects to benefit from increased demand for its exports and services from regional neighbors as Asia leads the global economy out of recession.

"Asia is expected to experience a strong recovery in 2010," the ministry said in a statement. "Financial markets have stabilized, and trade flows and industrial production have also picked up strongly."

"The recovery in the G3 economies, however, is expected to be weaker."

The ministry said the economy fell an annualized seasonally adjusted 2.8 percent in the fourth quarter, a smaller drop than the ministry's initial estimate last month of a 6.8 percent contraction.

The economy grew 4 percent in the October-to-December period from a year earlier, the ministry said.