South Korea's government cut its forecast for growth in Asia's fourth-largest economy this year as exports stumble due to muted global demand and a weaker yen.
The finance ministry said Thursday that South Korea's economy will expand 2.3 percent this year. Three months ago it forecast 3 percent growth for 2013.
The lower forecast stems from the slower-than-expected global recovery, still weak investment and consumption at home and lack of consumer and corporate confidence, Finance Minister Hyun Oh-seok, told reporters.
"Vitality in South Korea's economy has fallen sharply," Hyun said. "Situations ahead look tough. We cannot expect a significant improvement in exports."
South Korean manufacturers are struggling with weak overseas demand and increased competition from Japan where a new government has talked down the value of the yen, giving a boost to its exporting powerhouses such as Toyota Motor Corp.
The ministry said it will aid an economic recovery with a stimulus plan and spending more than 60 percent of the annual budget during the first half of the year.
Details of the stimulus spending will be announced next month, it said.
Hyundai Research Institute estimates that South Korea needs 11 trillion won ($9.9 billion) of extra government spending to add half a percentage point to growth. South Korea's last major stimulus was under former President Lee Myung-bak in 2009.
South Korea's economy grew 2 percent last year, the slowest pace in three years. The country's small domestic market means it is reliant on exporting to major economies such as China, Europe and the United States. None of those countries has fully recovered from the global recession in 2009.
"A full-scale recovery is being delayed," the finance ministry said in a statement.
The government estimates South Korea's exports were nearly flat during the first three months of 2013 over a year earlier, after a meager 0.3 percent growth in the final three months of 2012.
It attributed the slow improvement in exports to the uncertain economic situations in the U.S. and Europe, as well as the weak yen that made South Korean products less competitive in key overseas markets than Japanese goods.
The bleak economic picture adds to the challenges facing President Park Geun-hye during her first year in office. Park took office in Feb. 25 promising hefty welfare spending, more jobs and an increase of the country's middle class to 70 percent of the population from around 60 percent.
The finance ministry said it needs a bigger budget to aid recovery, to create jobs and to carry out Park's policies and welfare programs during her five year, single term. However, it estimated tax revenues will be lower than expected because of slower growth.
The ministry also pared its job market forecast as businesses remain reluctant to hire when the future is uncertain. South Korea will add only 250,000 new jobs this year, 70,000 less than its previous estimate.
It forecast the surplus in the current account, which is a broad measure of trade and investment balances with the rest of the world, to fall to $29 billion from $43 billion last year.
Inflation pressure will be lower as consumer prices will likely increase 2.3 percent, not 2.7 percent.
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