SEOUL: South Korea’s potential growth rate is projected to remain stagnant at 2 percent for the second consecutive year, signaling pressing challenges for the nation’s economic vitality and underscoring the need for targeted policy interventions to revitalize growth momentum.
According to Yonhap News Agency, data presented by the Finance Ministry to the National Assembly reveals the OECD’s projection of a 2 percent potential growth rate for South Korea this year. This marks a continued decline from 2.4 percent in 2020 and 2021, and 2.3 percent in 2022. The potential growth rate, which reflects the maximum sustainable economic growth without igniting inflation, serves as a critical gauge for policymakers.
Historically, South Korea’s potential growth rate has surpassed those of advanced economies. However, recent comparisons paint a different picture. The United States, for instance, has experienced an increase from 1.9 percent in 2020 and 2021 to 2.1 percent in 2023, with projections maintaining this rate th
rough 2024. Similarly, Germany and Britain are on upward trajectories, with Germany’s rate climbing from 0.7 percent in 2020 to a forecasted 0.8 percent in 2024, and Britain’s potential growth expected at 1.1 percent this year.
The rise in the U.S. potential growth rate, driven by advancements in AI and big data industries, as well as investments in research and development, contrasts sharply with South Korea’s stagnant outlook. Local economic institutions caution that South Korea’s potential growth rate may continue its downward trend unless the government tackles fundamental issues, notably the shrinking working-age population.
Statistics Korea predicts a significant demographic shift, with the working-age population share dropping from 71.1 percent in 2022 to 45.8 percent by 2072, exacerbated by a low birth rate and rapid aging. Additionally, complex regulations stymie the transition to new industries, hampering economic dynamism.
Experts emphasize the necessity of reforming labor market regulations and
improving conditions for growth-oriented businesses. Structural reforms are deemed essential to elevate South Korea’s potential growth rate, with calls for government action to dismantle outdated regulations and enhance investment environments.