Korea's potential growth rate continues to decline: KERI

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Korea's potential growth rate continues to decline: KERI

Published: 18 Aug. 2021, 19:30

Korea's potential growth rate has been on a steady decline over the past decades due to falling labor productivity, capital stock and working hours, a report said Wednesday.

The country's potential growth rate per working-age population fell to 2.1 percent in the 2010s from 3.8 percent in the 2000s, 5.3 percent in the 1990s and 7.6 percent in the 1980s, according to the report from the Korea Economic Research Institute (KERI).

The figure means the on-year growth rate of potential gross domestic product per person aged 15 and over. A potential growth rate refers to the maximum possible rate an economy can grow without triggering inflation.

KERI, the research arm of the Federation of Korean Industries, estimated the figures based on the country's total factor productivity, capital stock, working hours and employment rate.

The institute said Asia's fourth-largest economy has been suffering from setbacks.

Noting the downturn in the country's potential growth rate per working-age population has been accelerating, KERI voiced concern that the Korean economy may lapse into negative growth should the issue of falling factors be left unsolved.

In particular, Korea's decreasing birthrate and fast population aging could exacerbate the problem of declining growth potential down the road, the think tank added.

Korea has one of the lowest birthrates in the world. The country is widely expected to become a super-aged society in 2025, in which the proportion of those aged 65 and older will hit 20 percent of the total population. The country became an aged society in 2017, as the proportion of such people exceeded 14 percent.

Yonhap