(KPL/ Yonhap) The Republic of Korea's economy is faced with increased downside risks due to an anticipated global trade war centered around the United States, while production remains modest amid a prolonged slump in the construction sector, a state-run economic think tank said Monday.

"Recently, our economy has seen a modest growth in production while worsening external conditions have heightened downside risks," the Korea Development Institute (KDI) said in a monthly economic assessment report.

The KDI cited heightened concerns over the latest U.S. tariff policies.

U.S. President Donald Trump, who began his second term last month, has announced plans to impose steep tariffs on major trading partners in his efforts to address America's trade deficits and achieve other policy goals.

The think tank noted that South Korea's manufacturing sector has modestly improved, driven by strong semiconductor and automobile production, but the construction sector continues to decline.

"Domestic demand recovery, particularly in consumption and construction investment, has been delayed, and the strong export growth is gradually slowing down, except in the semiconductor sector," the KDI said.

According to government data, the Republic of Korea's exports, one of its key economic growth engines, declined in January for the first time in 16 months.

The KDI also pointed to weakening retail consumption and rising delinquency rates among small business owners as additional concerns.

KPL