OECD Forecasts South Korea's Potential Growth Rate to Fall Below 1.5% Next Year

Potential Growth Rate Falls Below 1.5% for the First Time Ever

There are projections that South Korea's potential growth rate will fall below 1.5% for the first time next year.

According to data released by the Organisation for Economic Co-operation and Development (OECD) on June 3, South Korea's potential growth rate is estimated to drop from 1.85% last year to 1.66% this year, a decrease of 0.19 percentage points.

For next year, the projected figure drops by another 0.14 percentage points to 1.52%. The OECD further analyzed that the potential growth rate for the fourth quarter of next year (compared to the same period of the previous year) will be just 1.46%. The OECD provides quarterly figures only for the fourth quarter.

Since the OECD began publishing these figures, this is the first time South Korea's estimated potential growth rate has fallen below 1.5%. The potential growth rate refers to the increase rate of potential gross domestic product (GDP). Potential GDP is defined as the maximum level of production that a country can achieve by utilizing all its production factors—such as labor, capital, and resources—without triggering inflation.

A declining figure indicates that the economy is effectively weakening. According to the latest OECD estimates, South Korea's potential growth rate first fell below 3% in 2016, dropping from 3.62% in 2012 to 2.93%, and it slipped below 2% last year.

This trend contrasts with the recent rapid improvement in the country's economic conditions. On June 3, the OECD raised its forecast for South Korea's real GDP growth rate this year from the previous 1.7% to 2.6%, an upward adjustment of 0.9 percentage points. This reflects a preliminary real GDP growth rate of 1.7% in the first quarter of this year, driven by strong exports of information technology (IT) products such as semiconductors. While the semiconductor boom is currently boosting the growth rate, this does not mean the structural limitations of the South Korean economy have been resolved. However, some experts believe that if the semiconductor boom continues structurally, there remains a possibility for a dramatic rebound in the potential growth rate.

This content was produced with the assistance of AI translation services.