A cooling Chinese economy and concerns over a U.S. interest rate hike are fueling global economic volatility that could pose challenges for the South Korean economy, the finance ministry said Monday.

In a report to the National Assembly, the ministry said there are signs that leading economies such as the United States are shrugging off the lethargy of the past, but such positive developments are being offset by other negative ones.

"The likelihood of a U.S. rate hike this fall and the decision made by Beijing to devalue the yuan are causing worries in the international financial market," the ministry said.

Such concerns are also casting a shadow on South Korea gradually overcoming the fallout of the Middle East Respiratory Syndrome outbreak that crippled private consumption over the past few months. The respiratory illness claimed 36 lives and infected

186 people since May 20, although no new cases have been reported since July 4.

"Compared to the second quarter, things are improving in the service and consumption sectors," the ministry said in the report submitted for an annual parliamentary audit.

On top of such external factors, Asia's fourth-largest economy remains gripped by a drop in exports, weak consumer prices and foreign sell-offs of South Korean stocks.

The country's inflation has moved up less than 1 percent for some time now, triggering deflation worries, while outbound shipments contracted 6.1 percent in the first eight months of this year.

Touching on the foreign sell-off of shares and worries of possible capital flight, Finance Minister Choi Kyung-hwan told lawmakers during the parliamentary audit that the country is actually keeping close tabs on a sudden influx of funds.

"There are no real risks of capital outflows at present, although the government is monitoring all changes, so it can respond accordingly," the policymaker said.

 Choi, who doubles as deputy prime minister in charge of economic affairs, however, conceded that weak exports are causing anxiety.

"Things may pick up pace but, at the same time, it is true conditions are not favorable," he said.

Some experts are predicting a "hard landing" for China's economy, but Choi said he did not share this view.

The finance minister, meanwhile, lauded the labor reform agreement reached late Sunday, vowing to complete the legislative process by the end of the year.

The tripartite committee of labor, management and government agreed to ease labor restrictions that can make it possible to fire workers for underperformance and change employment rules that may not be advantageous to workers.

"The government is committed to enhancing flexibility, as well as strengthening job security, in the market, and will work with labor and management to come up with clear details and procedures," he said. (Yonhap)