South Korean economy is facing external uncertainties that strengthened amid deepening crisis in Europe, a state-run think tank said Monday.

"Our economy was recently seen improved somewhat compared with the previous month, but external uncertainties such as European fiscal crisis deepened," the Korea Development Institute (KDI) said in its monthly report on economic conditions.

Economic indicators unveiled recently showed better picture compared with the previous month. Production in mining and manufacturing sectors grew 0.9 percent in April from a month before, improving from a 2.9 percent contraction tallied in March. Private consumption growth rose to 0.4 percent in April from 0.1 percent in March, while the consumer confidence index gained 1 point on-month to 105 in May.

Trade surplus reached 2.4 billion U.S. dollars in May, up from a 2.12 billion dollars surplus for April. Exports contracted 0.4 percent last month, but imports retreated 1.2 percent, falling more steeply than exports. It indicated that weak domestic demand and facility investment reduced inbound shipment from overseas.

Despite the improvement in economic data, the financial market reflected the deepening crisis in Europe. Amid strong appetite for safe haven, local stocks and currency dropped, and bond yields declined.

The benchmark KOSPI was quoted at 1,843.5 as of the end of May, down 138.5 points from a month before. Foreign investors dumped local shares due to growing uncertainties surrounding the European fiscal crisis. The South Korean currency depreciated to 1,177.8 won against the U.S. dollar as of end-May from 1,134.2 a month before, while the yield on three-year Treasury note declined 13 basis points on-month to 3.32 percent.

The KDI noted that the global economy kept its modest recovery trend helped by improvement in some advanced nations, but the think tank warned that downside risks to the global economy was expanding amid concerns over the contagion of Europe's debt crisis.