Seoul: South Korea’s economic growth potential is projected to decline significantly, potentially reaching around 0% in the 2040s, primarily due to demographic changes, as reported by a major state-run economic think-tank.
According to Qatar News Agency, the Korea Development Institute (KDI) revealed that the country’s potential growth rate for this year is estimated to be in the upper 1% range. However, a gradual slowdown is anticipated, with growth expected to nearly reach zero in the 2040s. The KDI further warned that the economy might begin to contract in the late 2040s or as early as the 2040s if timely structural reforms are not implemented.
The report attributes the expected decline in potential growth to demographic changes, particularly the rapid shrinkage of the working-age population. It explains that labor input is projected to start contributing negatively to growth around 2030. To counter the economic slowdown, the KDI advises South Korea to focus on structural reforms, create a favorable environment for innovative companies, and improve labor market efficiency.
The KDI also emphasizes the importance of promoting economic activities among women and the elderly and calls for measures to attract more foreign workers. Additionally, the KDI highlights the need to prevent the weakening of fiscal soundness amid the rapid aging of the population. It notes that the country’s fiscal deficit, which averaged 1.4% of its GDP between 2011 and 2019, has increased to around 4% following the COVID-19 pandemic.