OECD Forecasts Korea's Potential Growth Rate at 1.9%, Lowest Since OECD Membership

The Organisation for Economic Co-operation and Development (OECD) has forecast Korea's potential growth rate at 1.9%, marking the lowest level since the country joined the OECD in 1996. This significant indicator suggests structural changes and growth deceleration in the Korean economy.

Record Low Growth Rate Since OECD Membership

According to the OECD's latest economic outlook, Korea's potential growth rate is projected at 1.9%. This represents the lowest figure since Korea became an OECD member in 1996, indicating that the Korean economy has concluded its era of rapid growth and stands at a new turning point.

Potential growth rate refers to the maximum economic growth rate a country can achieve without inflationary pressure. A decline in this indicator signifies that the economy's fundamental growth momentum is weakening.

Comparative Analysis with G7 Nations

Interestingly, Korea's potential growth rate recorded a mid-level position when compared to G7 major economies. While lower than the United States (2.1%), it remains higher than Canada (1.7%), Italy (1.3%), the United Kingdom (1.2%), France (1.0%), Germany (0.5%), and Japan (0.2%).

Particularly, Japan's 0.2% and Germany's 0.5% clearly demonstrate the impact of economic maturation and population aging on economic growth in developed countries. Korea is experiencing similar demographic transitions, requiring careful observation of future growth prospects.

Primary Causes of Growth Deceleration

Experts identify population aging, declining productivity growth rates, and investment sluggishness as the main causes behind Korea's potential growth rate decline. The decrease in working-age population and advancing aging serve as fundamental constraints on economic growth by reducing labor force supply.

Additionally, the relative slowdown in technological innovation pace and difficulties in discovering new growth engines are analyzed as factors affecting the potential growth rate decline. The inadequate transition from traditional manufacturing-centered economic structure to service industries and advanced technology sectors is also highlighted.

Government Response Directions and Challenges

The government is implementing multifaceted policy efforts to address this growth deceleration. Priority is being placed on creating new growth engines through digital transformation and the Green New Deal, while focusing on fostering innovative companies and expanding research and development investments.

Particularly, efforts are being made to enhance productivity through strengthening competitiveness in future core industries such as artificial intelligence, semiconductors, and biohealth. Continued efforts are also being made to alleviate labor shortage issues by expanding economic participation of women and the elderly.

Need for Long-term Structural Reforms

Economic experts emphasize that long-term structural reforms are more important than short-term stimulus measures. Key tasks include human resource development through educational system reform, enhancing corporate vitality through regulatory improvements, and expanding labor market flexibility.

Improving demographic structure through increased birth rates and immigration policy improvements are also pointed out as issues that need long-term consideration. Experts commonly agree that without such fundamental changes, it would be difficult to prevent continued decline in potential growth rates.

Harmony with International Economic Environment

Korea's potential growth rate decline is also part of a global trend. In a situation where all major developed countries are recording lower growth rates compared to the past, Korea cannot escape from this global trend.

However, Korea still possesses relatively high growth potential compared to developed countries, and it is expected to maintain competitiveness through appropriate policy responses. The key is to continuously strengthen flexibility and innovation capabilities to adapt to changing economic environments.

This OECD forecast serves as an important wake-up call for Korea's economic policy direction. While the challenges are significant, with proper strategic responses focusing on innovation, productivity enhancement, and structural reforms, Korea can navigate this transition period successfully and establish a foundation for sustainable growth in the new economic paradigm.

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Original Korean article: https://trendy.storydot.kr/economy/korea-oecd-potential-growth-forecast-lowest