Low investment and consumption are further weighing on the Korean economy, said the Korea Development Institute, a state-run think tank, in a report.

Signs show that industrial production has been improving and exports maintaining resilience since last month.

However, slow investment, especially in the construction sector, which is leading to a stagnant real estate market, is projecting a bleak outlook for the economy.

Although the consumer sentiment index is above 100, showing more optimism than pessimism, consumers are continuing to tighten their wallets, KDI said.

Retail sales dropped 1.1 percent in December from November despite year-end holiday season, which usually increases consumer spending.

The Ministry of Strategy and Finance said that weak employment is another factor holding back the economy as data showed a job market slowdown over the past three months.

Only about 300,000 new jobs are expected to be created this year, the Bank of Korea predicted. This is 150,000 less than the market’s initial expectation.

Small and medium enterprises are likely to create fewer jobs this year due to the slowdown.

In 2012, some 430,000 jobs were created, and 415,000 in 2011, according to the central bank and the statistics bureau.

The Finance Ministry said that it expected industrial production to go through corrections as exports of automobiles and tech products may contract this year.

By Park Hyong-ki (hkp@heraldcorp.com)