The Bank of Korea (BOK) made an official statement on Jan. 6 that Korea’s potential growth rate is lower than what it used to be, but it is not 2 percent. This confronted head-on the recent argument raised by some research institutions that Korea’s potential growth rate decreased to some 2 percent.
Kang Hwan-goo, team leader of the model development division at the BOK, said that Korea’s potential economic growth rate for the period between 2015 and 2018 will be between 3 percent and 3.2 percent through the “Korean Economy’s Growth Rate Estimation Result” report. It means that the maximum growth rate of the gross domestic product (GDP), which can be achieved with all possible resources including capital and workforce without inflation, is 3.2 percent.
According to the report, Korea’s average annual potential economic growth rate dropped from 4.8 percent to 5.2 percent during the period from 2001 to 2005 and to 3.8 percent during 2006 to 2010. Then, the figure decreased to 3.2 percent and 3.4 percent during the period between 2011 and 2014. The potential growth rate, which showed the falling trend, declined 0.6 to 0.8 percent once again in three years.
Kang said, “Since 2000, the decrease in the potential economic growth rate came from many factors, such as the change in the social structure, like the aging population, and the economic structure, including sluggish investment and productivity stagnation in the service industry.”
The figures presented by research institutions at home and abroad are similar. The Korea Development Institute (KDI) estimated the average annual potential economic growth rate during 2016 to 2020 at 3 percent, while the Organization for Economic Co-operation and Development (OECD) forecasted the figure during 2015 to 2017 at 3.2 percent.
However, some private research agencies expected that Korea’s potential economic growth rate would drop to some 2 percent. LG Economic Research Institute said at its report last year that the figure of 3.6 percent during the period from 2010 to 2014 will decline to 2.5 percent during 2015 to 2019. Also, the figure will decrease further to 1.7 percent during the period between 2020 and 2030.