The Korea economy still remains in a protracted slump, but some positive signs in the service sector are likely to reduce the possibility of a further slowdown, a state-run think tank said Wednesday.

"Korea's growth has slowed gradually, but the economy is less likely to witness further weakness," the Korea Development Institute (KDI) said in its monthly evaluation of the country's economic conditions.

"Services production maintained its recent upward trend, and construction investment is in a favorable position, implying that a further economic slowdown is unlikely."

It is a slight change in its position from the previous month's report, in which the KDI mentioned "a gradual deceleration in economic growth," citing sluggish exports and consumption.

The KDI's latest April report said that production in the service industry continued to enjoy favorable conditions in the second month of the year, with its growth reaching 2.6 percent.

Also, construction investment and orders have been on an upward path, as part of a boom in the local property market, to cushion a slide in exports.

But the KDI held conservative views on exports as the external downward risks like low oil prices and a slowdown in China still weigh heavily on global demand.

"Exports showed a smaller decline in March, but a near-term recovery seems far away for now due to the slowing growth of the global economy," the KDI report said.

Outbound shipments of Asia's fourth-largest economy fell 8.2 percent in March from a year earlier, extending its losing streak to a record 15 straight months, although the pace of decline decelerated from a 18.8 percent drop in January and a 12.2 percent fall in February.

Industrial output, directly linked with exports, gained 2.4 percent in February, a turnaround from a 2.2 percent decline in January.

For the first two months of the year, however, industrial output retreated 0.1 percent from a year earlier.

On the demand side, the retail sales index grew 3.1 percent in February, slowing down from 4.6 percent growth in January, due to a drop in sales of non-durable goods.

But retail sales will likely stay strong in the coming months on a rebound in the latest consumer sentiment, it said. (Yonhap)