The South Korean economy, Asia's fourth-largest, is projected to lose further ground and expand at an annual rate of 2.5 percent in 2020.

"After peaking during the third quarter of this year, the economy is likely to show a phase of moderate contraction till the first half of 2020," said Kang Hyun-ju, a KCMI research fellow.

"South Korea's economic growth is falling as corporate capital and construction investments remain weak amid exports' dwindling contribution."

This year's economic slowdown has laid bare the limitations of an economic recovery driven by the chip sector as the impact of its boom failed to spill over into other industries, Kang added.

Touching on interest rates, the researcher said the Bank of Korea is highly likely to freeze the country's benchmark interest rate next year before lowering it in 2020, when the US Fed is expected to wrap up its rate hikes.

The think tank, meanwhile, painted a gloomy picture of South Korea's stock market in the coming year.

"Following this year's poor performance, the local stock market is expected to remain in the doldrums in 2019," said Jang Geun-hyuk, another KCMI research fellow. "But it may regain stability gradually and stage a rebound during the second half of 2019 as the Korean economy is widely expected to bottom out in the first half of next year."

Yet the local stock market may face severe downward pressure should the US economy peak and start to slow down earlier than expected in 2019, catapulting the American bourse into a period of correction, Jang pointed out. (Yonhap)