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Korea's economic growth may slow to near 0% in 2040s: KDI

Published: 08 May. 2025, 16:05

People walk through Myeong-dong in central Seoul on May 6. [YONHAP]

The Korean economy's potential growth rate may fall to around 0 percent in the 2040s due largely to demographic changes unless necessary reforms are taken in a timely manner, a major state-run economic think tank said Thursday.

Korea's potential growth rate for this year is estimated to be in the upper 1 percent range, with a gradual slowdown expected to bring growth down to nearly zero in the 2040s, the Korea Development Institute (KDI) said.

The KDI also warned that the economy may begin to contract in the late 2040s, or as soon as the early 2040s, if structural reforms are delayed.

"The expected decline in potential growth is attributable to demographic changes, with the working-age population expected to shrink rapidly," the report said, explaining that labor input is projected to start making a negative contribution to growth around 2030.

To slow the economic downturn, Korea should focus on structural reforms of the economy, creating a favorable environment for innovative companies and improving the efficiency of the labor market, the think tank said.

Efforts to promote economic activities of women and the older population are needed, the KDI added, also calling for measures to attract more foreign workers.

It also called for efforts to prevent the weakening of fiscal soundness amid the fast aging of the population, noting that the country's fiscal deficit had stood at 1.4 percent of its GDP between 2011 and 2019 on average but has increased to around 4 percent after the Covid-19 pandemic.

Yonhap