The Hyundai Research Institute projected the economy will grow by 2.5 percent this year and by 3.5 percent in 2013, adding another gloomy outlook for Korea's economic growth.

In a report released Wednesday, the institute cited sluggish exports, weak consumer demand and a lack of investment as the main reasons for this year's lowered forecast.

It said the government needs to devise better policies to revitalize the economy.

The institute's growth forecast for this year and next is 0.1 percentage point lower than figures recently announced by the International Monetary Fund.