S. Korea’s potential growth rate to fall below 2% for first time

A rental sign is posted on a closed shop in central Seoul on June 12. /News1

South Korea’s potential economic growth rate is expected to fall below 2% this year for the first time, according to an OECD report.

The Paris-based organization projected South Korea’s potential growth rate—the maximum GDP growth achievable without triggering inflation—at 1.9% this year in its latest report released last month, according to data submitted by the Bank of Korea to Democratic Party lawmaker Yang Boo-nam on July 7. This is 0.1 percentage point lower than the OECD’s December forecast of 2.0% and 0.3 percentage points below last year’s actual estimate of 2.2%.

Graphics by Chosun Design Lab Lee Min-kyung

The OECD report shows that Korea’s potential growth has steadily declined from 3.8% in 2011. It was around 5% in the early 2000s, dropped to the low-to-mid 3% range in the 2010s, and declined further to the mid-2% range between 2016 and 2020.

Key reasons for the decline include a shrinking population and weakening productivity. “Ten years ago, South Korea’s potential growth was around 3%, but now it’s well below 2%,” said BOK Governor Rhee Chang-yong at the ECB Forum on July 2.

The OECD projects this year’s potential growth among G7 countries at 2.1% for the U.S., followed by Canada (1.7%), Italy (1.3%), the U.K. (1.2%), France (1.0%), Germany (0.5%), and Japan (0.2%).

[Seon Jeong-min]

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