The Bank of Korea said in its report on Sept. 9 that South Korea’s potential economic growth rate is on the decline and the downtrend is likely to continue for a while.
According to the report, the annual potential growth rate of the South Korean economy was 5 percent to 5.2 percent in the period of 2001 to 2005, when the economy showed an annual real growth of 5 percent. The potential rate remained above 4 percent until 2010 but fell to 3 percent to 3.4 percent in 2011 to 2015 and 2.7 percent to 2.8 percent in the period starting in 2016. The bank’s potential growth rate estimate for this year and next year is 2.5 percent to 2.6 percent.
Besides, the gap between the potential and actual growth rates is widening. According to the Bank of Korea, the South Korean economy is expected to grow 2.2 percent this year. However, a number of organizations both at home and abroad are mentioning less than 2 percent.
The central bank called for an immediate restructuring to cover the entire economy as a way of increasing the potential economic growth rate. “The rate depends on the productivity of factors of production and, as such, assistance for job seekers, an increase in labor market flexibility, and many other similar systemic improvements need to be carried out so that labor can be efficiently input based on women’s and young people’s more participation in economic activities,” the central bank explained.
It mentioned South Korea’s low birth rate as an urgent issue, too. “With the total fertility rate less than one, the working age population is showing a rapid decline, affecting the supply of labor,” it went on to say.