The South Korean economy is maintaining a modest pace of growth on the back of a rise in domestic demand and corporate investment, a state-run think tank said Sunday.

In its latest monthly economic trends report, the Korea Development Institute said consumption and business investment are on the mend along with consumer confidence.

"Overall, the lowering of excise taxes has spurred domestic demand that has been the driving force behind recent growth," the report said. "The construction sector is contributing to gains along with investment made in manufacturing machinery."

The retails sales index shot up 8.3 percent on-year in October, accelerating from a 5.6-percent gain the previous month. Output in the service sector moved up a solid 3.1 percent in the same month, following 3.7-percent gains in September.

The country's facility investment index also soared 12.4 percent vis-a-vis the year before, with machinery-related investment edging up 0.9 percent in October. This is a rebound from a 3.7-percent on-year contraction reported for the month before.

New building orders and permits posted double-digit gains, with the robust real estate market fueling steady demand.

On the other hand, the KDI said exports remained weak and continued to weigh down the economy.

In November, outbound shipments backtracked 4.7 percent on-month, while for the first 11 months of the year numbers were down a sharp 7.4 percent. Imports were more disappointing as they nosedived 17.6 percent on weak international crude oil prices.

"Exports remain in a slump and industrial production continued to contract in many sectors," it said.

Excluding automobiles and the information and communication technology area, industrial output posted minus 2.5 percent growth in October, with the manufacturing capacity utilization rate dropping to 73.8 percent in October from 75.2 percent the month before, it said.

The KDI also said employment rose by 348,000 in October from a year earlier, up marginally from a gain of 347,000 tallied for September. (Yonhap)