The finance ministry now expects the economy to grow by 2.3% in 2013, down from its earlier projection of 3%.
Exports, which account for almost half of South Korea’s overall output, have been hit by weak demand from markets such as the US and the eurozone.
The ministry said that it would unveil a series of stimulus measures in the coming days aimed at reviving growth.
South Korea’s economy expanded by 2% in 2012, the slowest pace in three years.
Double whammy
South Korea’s exports have also come under pressure from the recent weakness in the Japanese currency.
The yen has dipped nearly 20% against the US dollar since November last year, making Japanese goods more affordable to foreign buyers.
Meanwhile, the South Korean won has risen by nearly 10% against the US dollar since May, making South Korean goods more expensive.
There are concerns that with Japan and South Korea competing in similar markets, South Korean goods may lose out as a result of fluctuations in the currency.
Meanwhile, policymakers have found it tough to boost domestic consumption in South Korea, which has also affected growth.
The ministry said that it would unveil stimulus measures, including a proposal for an additional supplementary budget and steps to spur the property market, to try to boost domestic spending.