South Korea's economy is expected to expand 3 percent this year as increased domestic consumption and government spending will offset sluggish exports and investment, a local think tank said Monday.

The Korea Institute for Industrial Economics & Trade projected South Korea's gross domestic product will post solid growth in 2018, although slightly below the 3.1 percent increase in 2017.

The growth rate was the same as outlook by the Bank of Korea, the International Monetary Fund and the Organization for Economic Cooperation and Development.
 
"Although exports and investment are expected to slow this year, the GDP growth rate is expected to remain at a similar level from last year on the back of hike in domestic consumption and government spending," the KIET said in an industrial outlook report.

The institute said exports will increase in line with recovery in major economies and robust sales prices of key export items, such as memory chips and petrochemical products, though the pace of growth is forecast to slow compared with last year due to high base effect.

Strong demand for memory chips and petrochemical products will maintain upward momentum throughout this year, but rising trade protectionism and tougher global competition in major markets were considered downside risks for the export-oriented economy, it noted.

"Except semiconductor, general machinery and petrochemical sectors, the domestic manufacturing industry is expected to have a tough time from the changing production and investment environment," the institute said.

The institute cited the United States' tightening monetary policy and its trade dispute with China as well as the BOK's rate decision and domestic job market as major factors that can determine the growth for Asia's fourth-largest economy. (Yonhap)