OECD Says South Korea's Potential Growth Rate Will Fall Below 1.5% Next Year for the First Time

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[Financial News] An international organization has forecast that South Korea's potential growth rate will fall below 1.5% next year for the first time on record.
The warning comes even as the outlook for real gross domestic product (GDP) has rebounded sharply on strong semiconductor exports, underscoring persistent structural limits in the South Korean economy.
According to Yonhap News Agency on the 7th, the latest data released by the Organisation for Economic Co-operation and Development (OECD) on the 3rd estimated South Korea's potential growth rate at 1.66% this year, down 0.19 percentage points from 1.85% last year. It is expected to fall further to 1.52% next year, down another 0.14 percentage points.
In the first quarter of next year, the potential growth rate is projected to come in at just 1.46% from a year earlier, indicating a relatively steep downward trend. The OECD provides quarterly figures only for the first quarter.
This is the first time South Korea's estimated potential growth rate has fallen below 1.5% since the OECD began publishing the relevant figures.
Potential growth rate refers to the growth rate of potential GDP. Potential GDP is the maximum level of output a country can produce by fully utilizing all production factors, including labor, capital, and resources, without triggering inflation. A decline in this figure is generally interpreted as a sign that economic capacity is weakening.
Based on the OECD's latest estimates, South Korea's potential growth rate has been on a steady downward path since 2012, when it stood at 3.62%. It first fell below 3% in 2016 at 2.93%, and after dropping below 2% last year, it has yet to recover.
In a report released in December last year, the OECD estimated South Korea's potential growth rate at 1.71% for this year and 1.57% for next year. It also projected the first quarter of next year at 1.52%, slightly above the 1.5% mark.
The OECD has lowered its estimates for this year and next year by 0.05 percentage points each, while cutting the first quarter of next year by 0.06 percentage points.
Experts say the decline reflects a combination of aging demographics, a shrinking labor supply, slower capital accumulation, and stagnant productivity gains.
They also say potential growth could rebound only if an improvement in the semiconductor cycle leads to broader investment growth and higher productivity across the economy.
Some, however, argue that the potential growth rate estimates published by the OECD and others are mechanically derived from models that place heavy weight on past trends, making them difficult to attach much significance to.
unsaid@fnnews.com Kang Myung-yeon Reporter