South Korea’s potential growth rate is projected to average around 1% next year, marking a significant decline. This key economic indicator, which measures sustainable output without fueling inflation, represents the sharpest drop even without new productivity drivers.
OECD’s Latest Forecast
Recent OECD data revises South Korea’s potential growth rate to 1.71% for the coming year, down 0.21 percentage points from last year’s 1.92%. Projections show a further decline to 1.57% by the fourth quarter of next year, the lowest level on record.
The rate has trended downward since 2012, when it stood at 3.63%, and has failed to rebound above 2% despite efforts. South Korea even overtook the United States in 2023.
Gap Widens with U.S.
The difference with the U.S. rate continues to grow: 0.03 percentage points in 2023, 0.13 in 2024, 0.28 in 2025, 0.31 overall next year, and 0.38 by the following year.
IMF Highlights GDP Gap
Actual GDP falls short of potential GDP across the board. IMF estimates place the GDP gap at -0.9% this year and -0.63% next year, remaining negative for five straight years since 2023’s -0.21%.
A shrinking labor force and lack of productivity gains hinder innovation and production elements, driving structural economic changes.
Government Response
Finance Minister Choi Sang-mok stated on the 20th, “We plan bold structural reforms in education, housing, R&D expansion, employment growth, and converting non-regular workers to regular positions to address these economic challenges.”
Rep. Shin Hyun-sung echoed this, saying, “The government must appropriately respond to these structural economic changes with active measures.”
