South Korea's economy is expected to grow at a slower pace next year than previously anticipated largely due to a slowdown in global trade and weak domestic demand, the Organization for Economic Cooperation and Development said Monday.

In its latest outlook for Korea, the Paris-based organization predicted Asia's fourth-largest economy to grow 3.8 percent next year, down from the 4.5 percent projection made in May this year.

For this year, the Korean economy will likely expand 3.7 percent on year, also down from the 4.6 percent forecast in May, the OECD said.

Sluggish growth is mainly due to a general slowdown in trade brought on by the current eurozone crisis and problems facing the United States, it said.

The OECD said that Korea's mounting household debt and excessive dependence on exports to fuel growth are also exerting negative influences.

The report added that despite growth falling below the 4 percent mark in both 2011 and 2012, the Korean economy should be able to grow 4.3 percent in 2013, backed mainly by a rebound in global trade.

The OECD advised Korea to gradually increase interest rates to curb inflation after it overcomes the current soft patch and uncertainties are removed.

Should downside risks of the global economy materialize, Seoul will have to take relevant macroeconomic policies, reform its economy and beef up its fiscal spending to stimulate economic growth, it said.  

The OECD, meanwhile, said the global economy will be able to grow 3.8 percent in 2011 and 3.4 percent in 2012, as many European countries struggle to cope with debt and unemployment issues. It, however, said that slower growth could ease inflationary pressure. (Yonhap News)