LOW EMPLOYMENT, HOME PRICES TO WEIGH ON SOUTH KOREA'S ECONOMY.

SEOUL, Jan. 2 Asia Pulse - Despite brisk growth last year, concerns are mounting over what lies in store for the Korean economy in 2007 as low employment and soaring house prices are feared to drag domestic spending further below previously expectated levels, economists say.

South Korea's economy, Asia's fourth-largest, is estimated to have advanced 5 per cent in 2006, up from 4 per cent a year earlier, backed by resilient exports and a recovery in domestic consumption.

Since late 2006, however, concerns have arisen over the pace of consumer spending growth - hampered by increased debt - which is seen as a key determinant of the economy's recovery after a credit bubble burst at the end of 2002.

Domestic spending grew at its slowest pace in nearly a year in the third quarter, growing 4 per cent on-year, according to data by the Bank of Korea. The central bank also shifted away its from its positive stance on the pace of the consumer spending growth in October, saying consumption is falling below expectations.

"It will be difficult to expect any clear rebound in consumer spending," the LG Economic Research Institute said in a recent report. "For the whole year, consumer spending growth is expected to fall to 3.8 per cent from an estimated 4.2 per cent advance in 2006."

According to local economists, total economic growth will slow to between 4.1 and 4.5 per cent this year from an estimated 5 per cent last year as consumer spending stays weak and concerns over North Korea's nuclear risks remain.

Low unemployment and high housing prices are likely to further squeeze consumer spending.