A gloomy prospectKorea’s per capita growth potential could fall to the zero range between 2030 and 2060 to become the slowest moving economy among members of the Organization for Economic Cooperation and Development (OECD). According to its latest report, the OECD estimated Korea’s potential growth rate in per capita GDP to stop at 0.8 percent per year from 2030 to 2060.
Potential growth rate refers to the maximum level of production achievable without stimulating inflation. The figure was projected to slow to 1.9 percent per annum in 2020-2030 from 2.8 percent in 2007-2020, if policy actions remain intact. From 2030, the rate could significantly slow to under 1 percent.
The outlook means the country will stop growing and become aged like Japan, which has grown little or not at all after peaking in 1990. When the growth potential stalls, economic activity loses steam. Aging will accelerate growth in welfare spending and national liabilities. In a separate report from the International Monetary Fund (IMF), Korea came first in the speed of national debt growth among 35 developed countries. At this rate, jobs will decrease and income become stagnated as in Japan.
The annual growth potential of 0.8 percent in 2030-2060 places Korea at the bottom with Canada among the 38 OECD members. The potential growth rate is smaller than the U.S. and Japan, each at a 1.0 percent estimate. Korea would be moving slower than the U.S., whose per capita income exceeds $60,000, and Japan in chronic recession.
We cannot go down the doomed path. Korea’s growth has been slowing by 1 percentage point every five years due to various social, economic and political factors. On the social front, the birthrate has fallen to the world’s lowest of 0.8 percent as Koreans shun relationship and family commitment. A thinning population triggers a double fall in consumption and production. Due to a decreased labor force and payroll, tax revenue will fall and reduce economic scale.
To prove the pessimistic scenario wrong, Korea must build an environment where young people can easily find jobs. Regulations must be radically removed to revitalize corporate activity.
Politics must change first. Populist policies that choke corporate activity and resort to tax-financed jobs will only undermine growth. Presidential candidates must take these warnings seriously and reflect them in their campaign platforms.