South Korea's Potential Growth Rate to Rebound for 2nd Straight Year for First Time in 40 Years... IMF: "2.14% This Year, 2.20% Next Year"

The International Monetary Fund (IMF) has reported that South Korea's potential growth rate, an indicator of the underlying strength of its economy, is expected to rebound for two consecutive years, this year and next. This back-to-back rise would be the first in about 40 years, since the 1986-1987 "three-low boom," fueled by low oil prices, low interest rates and a weak U.S. dollar.

According to the IMF's October 2026 World Economic Outlook, South Korea's estimated potential growth rate is projected to rebound from 1.94% last year to 2.14% this year, a rise of 0.20 percentage points, and then increase by a further 0.06 percentage points to 2.20% next year.

Visitors attending the 28th Semiconductor Expo at COEX in Gangnam-gu, Seoul, on Oct. 14 listen to an explanation of Samsung Electronics' zHBM. 2026.10.14. Photo by Kang Jinhyung.

First back-to-back annual increase since the "three-low boom"...highest in five years

The last time South Korea's potential growth rate rose for two consecutive years was during the 1986-1987 "three-low boom" of low oil prices, low interest rates and a weak dollar. The rate jumped from 9.67% in 1985 to 9.77% in 1986 and 9.91% in 1987.

Since then, the South Korean economy has been on a long-term downward trend. The potential growth rate, which stood at 4.05% in 2010, fell to 3.67% in 2011, 2.97% in 2018 and as low as 1.28% in 2020. This year's forecast of 2.14% is the highest in five years, since 2021, when it was 2.23% amid the base effect of the COVID-19 pandemic.

Potential growth refers to the maximum growth an economy can achieve by fully using available productive resources, such as labor, capital and technology, without triggering inflation. As an indicator of an economy's underlying strength, excluding cyclical factors, the rate suggests that South Korea's underlying growth capacity has returned to an expansionary trend despite a declining population amid population aging.

Ranks seventh among 27 countries...more optimistic than OECD

South Korea ranked seventh in potential growth this year among 27 major economies for which the IMF could calculate the rate. Malta (4.10%), Cyprus (3.39%), Denmark (2.68%), Slovenia (2.53%), Spain (2.50%) and the United States (2.33%) all ranked ahead of South Korea.

This is a more positive assessment than those of other international organizations. In June, the Organisation for Economic Co-operation and Development (OECD) forecast South Korea's potential growth rate at 1.66% this year and 1.52% next year, while the IMF's projections were considerably higher.

The IMF's assessment is also broadly in line with that of domestic research institutions. In a recently published medium- to long-term outlook report, the National Assembly Budget Office put this year's potential growth rate at 2.2% and the average for 2026-2030 at 2.3%. The report said that while population decline is reducing labor's contribution, increased investment in AI-related facilities and improvements in total factor productivity are offsetting that effect and driving potential growth.

Per capita income tops $40,000...projected to reach $50,000 in 2028

National income indicators are also expected to continue rising. According to IMF estimates, South Korea's nominal GDP per capita is projected to reach $43,512 this year, establishing it above the $40,000 mark. It is then expected to rise to $49,277 next year and exceed $52,100 in 2028, ushering in an era of per capita national income above $50,000.

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