This undated file photo shows commuters at a Seoul subway station. (Image courtesy of Yonhap)
SEOUL, Dec. 20 (Korea Bizwire) – South Korea’s potential growth rate is projected to fall below 2% next year, signaling challenges for the nation’s long-term economic sustainability, according to a report released by the Bank of Korea (BOK) on December 19.
Without structural reforms in labor markets, birthrate improvement, and increased workforce participation by women and older adults, the potential growth rate could decline to below 1% within two decades.
The potential growth rate—indicating the economy’s capacity to grow without triggering inflation—stood at 2% in 2024 but is forecasted to average 1.8% from 2025 to 2029.
The figure has steadily decreased from around 5% in the early 2000s, reflecting demographic shifts, declining capital investment, and stagnant productivity.
By the 2030s, the growth rate is expected to drop to 1.3% and could fall to 0.6–0.7% by the 2040s. The BOK warns that labor force contributions will turn negative by the 2030s, with a projected drag of -0.4 percentage points on growth by 2045–2049 due to rapid aging and shrinking working-age populations.
Experts emphasize that fundamental structural reforms are urgently needed. “Reforms in labor market inefficiencies, resource allocation, and support for innovation-driven enterprises are critical to boosting productivity,” said Bae Byeong-ho, a senior BOK economist.
The report also called for measures to improve work-life balance to increase female workforce participation and policies to decentralize labor supply from Seoul to regional areas.
The Bank of Korea headquarters in Seoul (Image courtesy of Yonhap)
The BOK estimates that these reforms could lift the potential growth rate by 0.7 percentage points by the 2040s. Enhancing birthrates and improving productivity among women and older workers could each add 0.1–0.2 percentage points.
Meanwhile, South Korea is also grappling with economic disruptions following the emergency martial law declaration on December 3, which was lifted hours later.
During the week of November 30 to December 6, credit card spending plummeted by 26.3% compared to the previous week, with the sharpest declines observed among consumers in their 50s and 60s.
Ashley Song (ashley@koreabizwire.com)
