Korea's economy is expected to grow at an annual rate of 3.5 percent on average through 2016, but its growth may slow if the eurozone crisis further protracts, a report showed on Sunday.

Asia's fourth-largest economy is forecast to grow 2.5 percent this year before its growth rate accelerates to 3.5 percent in 2013 and 4.3 percent in 2014, according to the report compiled by the National Assembly Budget Office (NABO).

The country's economic growth is estimated at 3.9 percent and 3.4 percent, respectively, in 2015 and 2016, the report showed.

"The economic projection is based on the assumption that the fiscal crisis in Europe would not lead to another slump in the global economy," the report said. "The reemergence of the European crisis, among other factors, is the largest downside risk to the Korean economy."

The report said the country's exports would not improve sharply over the mid-term due to the ongoing crisis in Europe and slowdowns in China and the United States.

Also, waning domestic demand and highly-indebted households could pose downside risks to the economy, according to the report.
The NABO's latest growth projections are in stark contrast with the government's growth targets for the coming years.

The government is expecting the economy to grow 3.3 percent this year, and 4 percent next year. Its growth estimates for 2014, 2015 and 2016 are put at 4.3 percent, 4.5 percent and 4.5 percent, respectively.

The country's policymakers are hoping that the U.S. economy and other major economies such as China would improve gradually down the road, with emerging economies also showing a modest recovery.

The NABO also said the country's annual growth potential would reach 3.7 percent through 2016, lower than the annual rate of 4.4 percent posted in the 2004-2007 period. The figure also compares with the annual rate of 3.9 percent seen in the 2007-2011 period, according to the report. (Yonhap)