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South Korean on Thursday slashed its economic growth forecast for this year to 2.3 percent, citing a continued slump in export markets and a weak Japanese yen.
The new target was sharply down from a December estimate of 3.0 percent and below the central bank's revised forecast of 2.8 percent.
"It's difficult to expect a meaningful pick-up in exports this year due to a slow recovery in global demand and the yen's weakness," the Ministry of Strategy and Finance in a statement.
"Conditions are also weak for domestic consumption and corporate investment to improve in the near future."
The ministry said the government would come up with a stimulus package, including a supplementary budget, to fund growth measures, including efforts to boost the property market.
The additional spending will likely be funded by issuing new government debt, which may further delay the finance ministry's ambition of a fiscal surplus by next year.
The government has already given up on returning the fiscal balance to a surplus this year, settling for a budget deficit equivalent to 0.3 percent of gross domestic product.
Analysts said they expected the spending package would be between 10 trillion won ($9.0 billion) and 15 trillion won, and aimed at creating jobs and supporting low-income earners.
The central Bank of Korea confirmed Tuesday that the economy grew just 2.0 percent last year -- the slowest rate for three years -- on weak export growth and consumer demand.
South Korea's exporters have been hurt by the falling yen, which has weakened in recent months as the new government in Tokyo embarks on an aggressive monetary easing policy it says is aimed at kickstarting inflation.
Finance Minister Hyun Oh-Seok said last week a policy mix aimed at reviving the economy could also include monetary steps, sparking speculation that the central bank may lower interest rates in the near future.
Earlier this month, the bank kept its rate unchanged at 2.75 percent for a fifth consecutive month.
The last time South Korea adopted a supplementary budget was in 2009 when it drew up 28.4 trillion won in additional spending in a bid to tide over the global financial crisis.
-- Dow Jones Newswires contributed to this report --