A South Korean think tank on Wednesday forecast the country's economy to grow 3.7 percent next year, lower than the central bank's projection of 3.9 percent.

In its more conservative forecast, the Korea Institute of Finance (KIF) said growth is expected to reach 3.6 percent in the first half and accelerate to 3.9 percent in the second half.

"While (negative) structural factors linger, consumption will likely improve next year as government policies and the low-rate effect begin to materialize," said Park Sung-wook, director of KIF's Macroeconomic & International Finance Division.

The institute expected private consumption to grow 2.8 percent next year, up from 1.8 percent this year as ongoing government stimulus and two rate cuts boost sentiment.

Facility investment, which policymakers have cited as a weak spot, is also expected to rise to 7.9 percent from 5.3 percent as large corporations launch major investments in line with a global economic recovery, it said.

Park added that facility investment expansion is unlikely to mark two-digit growth seen in periods of robust growth as lingering uncertainties block companies from revving up spending.

Exports, a key growth driver for the trade-reliant economy, are estimated to grow 5.4 percent next year, up from 3.5 percent this year.

The think tank, however, said shipments to China, the biggest importer of South Korean products, may wane amid slowing growth in the world's second-largest economy. A continued weakening of the Japanese yen will likely hurt exporters, it added.

It also stressed the need to brace against potential fund outflows from the U.S. Federal Reserve's eventual rate hike and resurfacing risks in the eurozone.

The Bank of Korea on Oct. 15 had trimmed its outlook for next year to 3.9 percent from 4 percent, citing a weaker-than-expected recovery and a lack of growth momentum.

The central bank said the revised outlook factors in ongoing policy efforts, with the impact accounting for 0.2 percentage point of the total.

The government has released a string of measures aimed at boosting tepid consumption and property transactions. The central bank has buttressed the move by lowering the base rate two times this year to a record-low of 2 percent.

Some market watchers, meanwhile, raised caution against the view that consumer sentiment will rebound soon.

"The consumer sentiment and business sentiment indices show that economic sentiment is not recovering quickly. We cannot help question how much the factors shaking the sentiment will be cleared next year," said Chang Jae-chul, chief economist at Citibank Korea, noting that there is room for an additional rate cut if the yen continues to weaken.

Central bank data showed that consumer sentiment slipped to a three-month low in October, matching the level seen in May following the deadly sinking of the ferry Sewol that sent the economy reeling. (Yonhap)