The South Korean economy is on a recovery path, aided by a mild improvement in the manufacturing sector, but it faces growing downside risks amid a global resurgence in new coronavirus cases, a state-run think tank said Sunday.

The country's service industry has slackened as people refrained from making in-person contact and going outside, while the manufacturing sector has undergone a limited recovery on improving demand at home and abroad, according to a monthly economic assessment report by the Korea Development Institute (KDI).

"Despite a modest recovery in the manufacturing sector, the Korean economy shows a continued contraction, mainly in the service industry, and downside risks are high over accelerating COVID-19 in Europe," the English-language report showed.

South Korea's production, consumption and investment returned to growth in September following months of slumps amid the virus outbreak.

The country's industrial output gained 2.3 percent on-month in September, after a 0.8 percent on-month decline in August, according to data from the statistics office.

Retail sales rose 1.7 percent on-month in September, and facility investment gained 7.4 percent, the largest monthly increase in six months.

Asia's fourth-largest economy grew 1.9 percent on-quarter in the third quarter, marking the first quarterly growth after the second straight quarter of contraction, as exports rebounded amid eased global lockdowns.

The KDI said despite signs of economic recovery, external economic conditions are deteriorating amid lockdowns by major European countries over a flare-up in COVID-19 cases since late October.

"The lockdown in Europe may lead to a rapid contraction in world trade volume. This implies that economic uncertainties are mounting centering around external conditions," the report said. (Yonhap)