The Korean economy is forecast to expand 4 percent this year on the back of a recently unveiled stimulus package although downside risks persist such as sluggish consumer spending and construction investment, a U.N. survey showed Thursday.

The U.N. Economic and Social Commission for Asia and the Pacific launched the Korean edition of its annual economic and social survey for the region on the sidelines of the Northeast Asia Economic Forum it hosted in partnership with the Korea Institute for International Economic Policy.

According to the report, the country’s inflation rate will hover around 2.1 percent for 2014, marking a slight rise from 1.3 percent in 2013.

An 11.7 trillion won ($11.5 billion) initiative introduced last month will be a key boost to Asia’s fourth-largest economy, the report said, shoring up poor households and small businesses while invigorating the property market.

“The positive outlook is nonetheless subject to several headwinds. Weaker-than-expected private consumption in early 2014 is weighing down the economy. Construction investment is also slowing in response to continued sluggishness of property markets,” it said.

“Amid intensifying pressures on export growth due to the strengthening of the local currency and greater competition in key export products, the economy could be entering a trajectory of lower economic growth in the coming years.”

With consumer spending remaining listless in the wake of the Sewol ferry sinking, ESCAP calls for “unlocking” domestic demand to sustain growth and ensure future drivers.

The agency also recommends strengthening direct tax revenues by broadening the tax base, rationalizing rates, tackling evasion, making tax administration efficient and carefully sequencing tax reforms, and promoting better regional cooperation.

As for East and Northeast Asia, the survey projects the trade-dependent economy to grow 4.1 percent this year, versus 4.2 percent last year.

Though most Asia-Pacific nations are faring better than expected, domestic structural constraints and limited fiscal space remain major stumbling blocks for economic growth and social development, it said.

“With 2014 projected to be yet another year of tepid growth aggravated by political tension and uncertainty, Asia and the Pacific and particularly East and Northeast Asian economies are called on to assume greater responsibility for revitalizing dynamism in the region,” said Kilaparti Ramakrishna, head of ESCAP’s East and Northeast Asia office.

“The solution to invigorating the region’s growth lies in enhancing regional cooperation and connectivity, by allowing ease of access to a greater pool of resources and markets, and by ushering in the development of low-income countries.”

By Shin Hyon-hee (heeshin@heraldcorp.com)