Korea's potential growth to drop below EU average by 2041

Korea's potential growth to drop below EU average by 2041

Korea's long-term potential growth rate may drop below the average level of the European Union by 2040, as it experiences a drop in the labor supply due to an aging population and a low birthrate, a recent study said.

According to the Korea Institute of Public Finance, Korea's potential growth rate will stand, on average, at 4.2 percent between 2011 and 2020, down from an average of 4.6 percent between 2003 and 2010. It is still significantly higher than the average of the member countries of the European Union, which is 2.2 percent in the 2003-2010 period and 2.1 percent in 2004-2010.

However, as Korea grapples with the rapid aging of its population and one of the world's lowest birthrates, its potential economic growth rate will plunge to 0.93 percent between 2041 and 2050, it projected. By that time, the study estimated the EU average to stand around 1.3 percent.

"In years after 2040, Korea is likely to have a potential growth rate lower than the average of EU countries," said Park Hyung-soo, one of the coauthors of the study. "EU countries have been experiencing problems related to low birth rates and aging populations for some time. But the pace was not as fast as here, and they are unlikely to see as rapid a drop in the labor supply as witnessed in Korea."

While Korea's population is projected to decline from 2020, improvement in productivity or facility investment is unlikely to make up for the labor shortage, the study said.

The estimated potential growth rate of Korea at 4.66 percent on average between 2001-2010 is currently one of the highest among member countries of the Organization for Economic Cooperation and Development.

<< The Korea Herald, June 18, 2007 >>