The South Korean government on Monday slashed its growth forecasts for 2011 and 2012 to reflect slowing economic momentum stemming from the euro-zone debt crisis but indicated that it will remain fiscally conservative, with economic stability as its primary goal.

The Ministry of Strategy and Finance now expects the economy to grow 3.8 percent this year and 3.7 percent in 2012, down sharply from a 4.5 percent growth tipped for both years previously. The government also raised its 2012 inflation outlook slightly to 3.2 percent from 3 percent previously.

The revision to the 2012 growth outlook may surprise some: The ministry usually forecasts stronger growth than the Bank of Korea, partly because the forecast also serves as the government's target. The sharp cut, which brings its forecast in line with the central bank's, reflects increasing headwind for Asia's fourth largest economy.