South Korea potential growth rate estimated around 2%, central bank says

SEOUL (Reuters) – South Korea’s potential economic growth rate is estimated to have fallen to around 2% and is projected to fall further below 1% by the late 2040s due to a lack of innovation and inefficient resource allocation, the central bank said on Thursday.

The Bank of Korea (BOK) estimated in an analysis that the potential growth rate, the maximum growth an economy can achieve in a year without triggering inflationary pressure, was around 2% from 2024 to 2026.

The rate has been falling in trend, from the lower 5% range in the early 2000s to the mid-to-lower 3% range in the 2010s and to mid-2% levels by 2020, the BOK said, citing lack of innovation and inefficiency in resource allocation.

In the long-term, the rate is projected to fall to the mid-to-lower 1% range in the 2030s and to around 0.6% by the late 2040s, according to the report.

“But, the abovementioned result is not a given condition and can differ greatly depending on how we respond through structural reforms,” the BOK said.

Major reforms that could boost the economy’s potential growth include building an ecosystem for innovation, balanced developments between the capital area and other regions of the country, and work-life balance policies, the bank said.