The finance ministry now sees gross domestic product expanding 1.4 per cent this year, down from a 1.6 per cent forecast in December, according to its mid-year outlook on Tuesday. The economy is projected to rebound next year with growth of 2.4 per cent, the statement indicated.
Government analysts also lowered their inflation outlook. They forecast the pace of consumer price gains will ease to 3.3 per cent by the end of 2023, from an earlier estimate of 3.5 per cent, before softening further into next year.
Separate data on Tuesday showed inflation cooled in June for a fifth straight month to 2.7 per cent, advancing at the slowest pace since September 2021, according to the statistics office. The Bank of Korea (BOK) warned, though, that inflation is set to heat up again this year.
The ministry's lower growth projections come after a sluggish first half when export demand dropped amid a weaker-than-expected recovery in China's economy and a global slowdown.
Government analysts see South Korea's economy rebounding next year, led by an improvement in world demand for semiconductors and a sustained pace of private consumption. Exports growth is seen dropping 6.6 per cent this year and advancing 8.8 per cent in 2024, led by improvement in chips demand.
The growth projections are largely in line with the BOK's view, but the finance ministry is more optimistic that inflation will cool, as global commodity prices fall and inflationary pressure eases in the service sector.
While South Korea posted its first trade surplus in 16 months in June, data showed chip exports extended a decline along with shipments to China, Korea's biggest trading partner.
To support economic momentum, the government said it will prepare measures to back local exporters, with a goal for them to secure US$35 billion (S$42 billion) in overseas orders this year. The ministry also said it will refrain from raising utility fees this year as part of efforts to ease the cost-of-living crunch for consumers.