The South Korean economy is expected to grow only 2.7 percent on-year in 2016 due to a continued downturn in exports and sluggish domestic demand, a private think tank said Tuesday.

In its latest economic outlook, the LG Economic Research Institute  predicted that weak exports stemming from a slowdown in China and consumer spending hit hard by the Middle East Respiratory Syndrome outbreak will continue to weigh on Asia's fourth-largest economy next year.

The think tank added that the South Korean economy is expected to expand 2.6 percent this year from 2014.

In the April-June period, the country's exports rose 0.3 percent, down 0.8 percent from three months earlier, while consumer spending fell 0.2 percent on-quarter, marking the first contraction in a year.

The MERS outbreak dampened private consumption as foreigners canceled their visits in droves and locals refrained from leaving their homes in fear of contracting the potentially fatal illness.

"Due to a slump in world trade, South Korean exports will likely grow at a slower pace and domestic demand will remain sluggish next year," said Lee Geun-tae, a senior researcher at the institute.

LGERI's 2016 growth forecast is lower than the government estimate but similar to predictions made by private economists.

Last week, Finance Minister Choi Kyung-hwan said that South Korea's growth rate will be revised down to 3.3 percent for next year from the 3.5 percent estimate made in June.

The average growth estimate by 10 major global investment banks for this year reached 2.6 percent, with Moody's sharply cutting its 2016 forecast to 2.5 percent from its previous 3.4 percent.

The LGERI, meanwhile, said the global economy will likely remain stuck in low growth and low inflation next year, predicting it to grow 3.2 percent from this year. (Yonhap)