A major state-run think tank on Wednesday revised down South Korea's 2014 and 2015 growth estimates, citing sluggish domestic demand and exports growth restrained by tough overseas market conditions.

The Korea Development Institute (KDI) forecast that the Korean economy will grow 3.4 percent this year, down from 3.7 percent it suggested in May. 

It cut next year's growth projection from 3.8 percent to 3.5 percent, and said even the target may not be met, given the "growing downside risks." 

The KDI's growth estimates are lower than the government's official targets. The government expects the economy to grow 3.7 percent this year and 4 percent next year. 

"Our economy seems to be coming out of the shock from the Sewol ferry disaster but still failing to be stimulated enough," the KDI said in a report.

"Growth rate of private spending remains anemic and investment is not showing signs of marked recovery, indicating that the overall domestic demand is in a slump," the report said. "Export growth is also slowing as shipments to China and the EU are faltering."

The ferry sinking in April off the southwestern coast of the country had left more than 300 people dead. People restrained spending as they mourned the tragedy, resulting in a dip in private-sector spending in the following few months. 

The finance ministry is working on its 2015 economy management plan that would include its updated growth outlook for the present and next year. Experts say that the government will have to lower the outlook that many see as too optimistic under the current economic conditions. 

Finance Minister Choi Kyung-hwan told a Seoul forum on Wednesday that the momentum for economic recovery remains "weak"

and that there are "downside risks" for growth next year, hinting that the government may adjust down the 4-percent growth outlook.

The KDI recommended that the government maintain its expansionary fiscal policy "for the time being" to stimulate economic activities. It also called for stepped up efforts to tackle debt problems of public companies and pension programs for public servants. 

The think tank expressed concerns over the protracted low rate of price growth, urging the government to deal with downside factors on inflation. 

"Low rates of price growth could end up causing side effects on macroeconomic situations by increasing actual debt burden for households and making it harder for the government to collect taxes," the KDI said. "They could also lower expected inflation, which would eventually hamper economic stimulation through interest rate cuts," it added. 

The KDI expected consumer prices to grow 1.8 percent next year, but said the growth rate would be slightly over 1 percent if the effect of a 2,000 won (US$1.8) price hike in tobacco, to go into effect on Jan. 1, is not counted. 

It forecast that the country will post $89 billion in current account surplus next year, slightly lower than $90.5 billion predicted for this year. Exports were expected to grow 0.4 percent next year after a 1 percent advance this year. (Yonhap)