South Korea’s potential growth forecast expected to drop to a historic low, raising concerns about the economy’s future.
OECD Predicts Historic Low for South Korea’s Potential Growth Rate
The Organisation for Economic Co-operation and Development (OECD) forecasts that South Korea’s potential growth rate will decline to 1.52% by 2027, marking a historic low. This downturn occurs despite a robust recovery in exports, particularly driven by a significant boom in the semiconductor sector.
Growth Forecasts and Structural Decline
According to the OECD’s published data, the quarterly growth rate is expected to drop to 1.46% in the last quarter of next year. This decline highlights the ongoing structural challenges facing South Korea’s economy, which hinder its ability to achieve sustainable growth.
Understanding Potential Growth
Potential growth refers to the maximum GDP growth rate achievable by effectively utilizing available resources without triggering inflation. This metric serves as a crucial indicator of long-term economic health.
Continuous Decline Since 2012
Data from the OECD reveals that South Korea’s potential growth has been on a downward trajectory since 2012. The growth rate stood at 3.62% that year, fell to 2.93% in 2016, and dipped below 2% last year. Experts now predict that it will fall below 1.5% for the first time in history.
Several structural factors contribute to this decline, including:
- Aging population
- Shrinking workforce
- Slowing capital accumulation
- Stagnant productivity growth
Short-Term Improvement
Despite these negative forecasts, the OECD has raised its estimate for South Korea’s real GDP growth this year to 2.6%, up from an earlier prediction of 1.7%. This increase stems from a surge in semiconductor exports, which account for 40% of total exports.
However, the OECD emphasizes that this improvement is temporary and does not address the structural challenges that negatively impact long-term growth potential.
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