South Korea is emerging from the fallout of the Middle East Respiratory Syndrome outbreak, but slumping exports are posing a threat to the economic recovery, a state-run think tank said Sunday.

According to the Korea Development Institute, Asia's fourth-largest economy underwent a smaller-than-expected contraction in consumption with business investment posting a moderate on-year increase in July compared with growth figures posted for the month before.

"The effect of MERS is clearly on the wane in such areas as retail and in certain service sectors, with consumer sentiment also moving up," KDI's latest economic trend report showed.

First confirmed in late May, MERS infected 186 people, with 36 of them succumbing to the disease. No new cases have been reported since July 4.

The think tank said service sector output and retail numbers were up 2.2 percent and 1.9 percent, respectively, in July from a year earlier. The country's equipment investment index also jumped 6.9 percent on-year.

On the other hand, industrial production contracted a sharp 3.3 percent vis-a-vis the year before, mainly due to poor exports.

"The slowing growth of the global economy is weighing on exports that effectively limited gains in manufacturing sector output," it said.

A leading economic institute in South Korea said with the country's exports to all major economies staying weak, it may be hard to expect a turnaround anytime soon.

South Korea's outbound shipments plunged 14.7 percent on-year in August, with exports down 6.1 percent in the first eight months of this year. Such a development bodes ill for the heavily export dependent economy.

"The fall in exports and its effects on production are causing a rise in inventory and a drop in manufacturing shipments," it said.

The think tank attributed such conditions to the overall slowdown in the global economy and financial market turmoil, brought on in part by troubles facing China and other major emerging markets.

On the labor market, the KDI said July's monthly jobs added to the market reached 326,000, slightly down from 329,000 tallied the month before.

"There are some signs of improvement, but any gain remains weak at present," the institute said. (Yonhap)