South Korea’s economic growth for this year is likely to go down about 0.25 percent from the 3.5 percent baseline forecast, reflecting the weakening global outlook, the International Monetary Fund said on Tuesday.

“Activity in the second half of 2012 is expected to expand at a moderate pace supported by Korea’s competitive export sector and the recently concluded EU and U.S. Free Trade Agreements,” said the IMF through the Statement at the Conclusion of the 2012 Article IV Consultation Mission to Korea released after its annual meetings with Korean governmental officials held from May 30 to June 12.

“On the domestic side, facilities investment is expected to recover, while consumption should be boosted by stronger wage growth,” it said.

IMF explained that the outlook is, however, subject to substantial uncertainty.

“The main downside risk relates to the intensification of the crisis in Europe. While the direct exposure to Europe is not high, if weaknesses there were to spill over to the United States and China, the impact on Korea can be substantial,” it said.

IMF noted that the baseline for 2012 envisages the full implementation of the budget and called the government’s determination to resist spending pressure in an election year and continue to consolidate its fiscal position commendable.

Given its fiscal strength, however, it said, in the event of a significant worsening of the global economy, there is room for the government to take additional fiscal measures to support the economy, if necessary. It also lauded Korea’s intention to increase social spending.

About the nation’s monetary policy, the IMF said that maintaining the policy rate at the current level is an appropriate response to global economic weakness and uncertainties.

“However, the monetary policy stance is still accommodative, and when growth strengthens from its current moderation, some increase in the policy rate may be needed in early 2013 to ensure that inflation remains within the target range,” it said.

By Park Min-young (claire@heraldcorp.com)