BOK "Potential growth rate falls by 1.8% in late 2020s"

Analysts say the potential growth rate will fall to an annual average of 1.8% for five years after next year.

The Bank of Korea's "Potential Growth and Future Prospects for Our Economy" report estimated the potential growth rate between 2024 and 2026 to be around 2%, based on data accumulated after the COVID-19 pandemic.

If the current trend continues without improvement, the potential growth rate will fall to an annual average of 1.8% from 2025 to 2029.

In addition, if there is no active structural reform, it is expected to be less than 1% in 2040 15 years later.

The potential growth rate is the maximum GDP growth rate that can be achieved without causing inflation while mobilizing all factors of production, including labor, capital, and resources of a country.

The Bank of Korea explained that the potential growth rate fell because the contribution of total factor productivity decreased due to the lack of innovation in the Korean economy and inefficiency in resource allocation, while labor and capital input contributions decreased due to changes in demographic structure and slowing investment due to economic maturity.