Analysis has emerged that the growth potential of the Korean economy is rapidly weakening. It is projected that the potential growth rate could drop to around 1% in the 2030s.
The Hyundai Research Institute noted in a report released on the 31st that "the decline in the potential growth rate of the Korean economy is ongoing, and if this is not overcome, the possibility of failing to enter the ranks of global economic powers is high."
According to the report, Korea's potential growth rate was 4.7% in the early 2000s, but has fallen to around 2.1% since the COVID-19 pandemic. Considering the future pace of capital accumulation and the decrease in the working-age population, it is analyzed that the rate will drop to 1.6% between 2026 and 2030 and to 1.0% between 2031 and 2035.
The institute identified the causes of the slowdown in potential growth rate as ▲entering a phase of structural low growth in the global economy ▲tariff policy by U.S. President Donald Trump ▲intensification of U.S.-China conflicts and restructuring of supply chains ▲weakening export competitiveness due to emerging nations' competition ▲stagnation in domestic capital accumulation and labor shortages ▲limitations of government fiscal capacity.
It pointed out that particularly the shift in global supply chains from existing Global Value Chains (GVC) to Domestic Value Chains (DVC) and the spread of protectionism may threaten the growth foundations of the Korean economy.
The institute stated, "To achieve a new leap in the economy, enhancing productivity and securing future growth engines are essential." It also noted, "We need to diversify supply chains and establish systems to enable close cooperation between the government and private sectors," and added, "Practical diplomatic and trade policies should be pursued."
It also suggested that it is necessary to raise the potential growth rate through creating a corporation-friendly investment environment, expanding the labor force, and increasing investment in research and development.