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South Korea 2016 growth forecast revised slightly down

Pedestrians cross a road in front of the Bank of Korea headquarters in Seoul, South Korea.

[SEOUL] An influential South Korean government think tank revised down its economic growth forecast for next year with weak exports expected to continue hobbling expansion, it said in a biannual report on Wednesday.

The Korea Development Institute (KDI) said growth in Asia's fourth-largest economy is expected to rise 3.0 per cent next year, tweaked down from its 3.1 per cent growth projection made in May. "Domestic consumption is expected to improve as real household income will rise on low interest rates and low oil prices as well as a boost in construction on positive housing transactions," the think tank said in a report.

However, weakness in exports will persist as growth in other emerging economies slows while the competitiveness of South Korean exports softens, it added.

The comments are broadly in line with those made by the central bank and finance ministry in recent months.

Also in the report, the KDI advised the government to focus its efforts on reforming how it spends money and expanding tax revenue sources. It also said monetary policy in South Korea should retain its current accommodative stance to support the ongoing economic recovery.

The Bank of Korea has cut interest rates four times to a record-low of 1.50 per cent from 2.50 per cent last year, with the most recent rate cut taking place in June.

The central bank is expected to make no change to interest rates at its policy meeting on Thursday ahead of the U.S. Federal Reserve's pending rate hike.

This year, the KDI said the economy would grow 2.6 per cent, down from its previous forecast of 3.0 per cent. This was lower than forecasts made by the BOK and the finance ministry, which see this year's growth at 2.7 per cent and 3.1 per cent, respectively.

Although the think tank is run by the government, it formulates its own economic forecasts separately from the government. The finance ministry will announce its revised forecasts next week.