South Korea's economic recovery is being hampered by weakening domestic demand, although exports remain relatively sound, a state-run think tank said Tuesday.

"Export growth has been maintained, but domestic demand growth is weakening, putting a drag on the pace of economic improvement," the Korea Development Institute (KDI) said in its monthly evaluation of the country's economic conditions.

The think tank said exports remain relatively positive, led by semiconductors, while investments are stagnant and consumption improved only at a moderate pace, indicating that domestic demand is somewhat weaker.

This image shows the KDI logo superimposed over photos of shipping containers and cars at a South Korean port. (Yonhap)

The country's industrial output remained flat in June compared with the year earlier period, following a 1.6 percent on-year rise the previous month.

The retail sales growth rate slowed, and the consumer sentiment index fell, a sign that consumption growth is moderating.

Retail sales gained 4 percent in June from a year earlier, decelerating from the previous month's 4.5 percent on-year rise. The services production index gained 1.7 percent in June, compared with a 2.3 percent on-year rise the previous month.

Facility investment dipped 13.8 percent in June, accelerating from the previous month's 3.7 percent on-year decrease.

On the export front, June's outbound shipments increased 6.2 percent, compared with a 0.2 percent on-year fall the previous month.

The KDI also said that, despite the gains in a few service industries, growth in the total number of those employed remains weak on continued declines in manufacturing employment.

The survey conducted on economists by the KDI shows that Asia's fourth-largest economy is expected to grow 2.8 percent this year and expand at a similar pace in 2019.

The economic growth estimate is 0.1 percentage point lower than the one projected in April.

The country's exports are forecast to increase by between 5 percent and 6 percent this year, with employment numbers to drop sharply, the survey showed.

In the first six months of the year, 142,000 jobs were added, the lowest since the reduction of 27,000 seen during the second half of 2009. (yonhap)

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