South Korean economy continued to see employment improve, but economic indicators weakened amid persistent inflation expectations, the finance ministry said Tuesday.

"Our economy saw employment maintain its recovery trend, but economic indicators such as industrial output and retail sales were weakening amid lingering inflation expectations," the Ministry of Strategy and Finance said in a so-called Green Book, a monthly report assessing the nation's economic conditions.

The Asia's No.4 economy created more than 400,000 jobs for the third straight month in December, sending the jobless rate down to 3 percent last month. Despite falling job creation in the manufacturing sector, continued job growth in the service industry boosted the country's labor market.

In contrast, industrial output and retail sales decreased amid weaker exports. Output in mining, manufacturing and electricity & gas sectors diminished 0.9 percent on-month in December after shrinking 0.3 percent and 0.6 percent respectively in November and October. Retail sales posted a 0.2 percent on-month reduction last month.

Exports, which account for more than half of the South Korean economy, recorded the first on-year reduction in more than three years in January, posting trade deficit for the first time in two years. Exports contracted 6.6 percent on-year to 41.54 billion dollars last month, with trade deficit amounting to 1.96 billion dollars.

The nation's consumer price growth decelerated last month, but inflation expectation remained at a high level. Consumer prices advanced 3.4 percent in January from a year earlier, down from a 4. 2 percent on-year gain tallied in December. Inflation expectation over the next 12 months came in at an annual rate of 4.1 percent in January, up 0.1 percentage points from the previous month.

The ministry cautioned that there were lingering external uncertainties such as Europe's fiscal crisis, the possible global economic downturn and concerns over higher oil prices. The ministry said that it would closely monitor economic conditions at home and abroad, promising that it would strengthen its policy response to achieve economic recovery along with stable prices.