Rhee Chang-yong, governor of the Bank of Korea, warned that Korea's potential growth rate will plunge into the 0% range in 2040.
Rhee said this in his welcome remarks at the "Korea Finance Association–Bank of Korea (BOK) joint policy symposium" held at the BOK headquarters on the 9th. The potential growth rate refers to the growth rate that can be achieved when a country makes the most of all production factors, such as labor and capital.
Rhee said, "Korea's potential growth rate appears to have fallen from around 5% in the early 2000s to below 2% recently," adding, "If the trend continues, it is highly likely to decline into the 0% range in the 2040s."
Rhee noted, "The weakening of growth potential is because, as the working-age population shrinks due to rapid low birthrates and aging, corporations' investment and productivity innovation to cushion this have been insufficient," adding, "The failure to allocate resources to institutional sectors with higher productivity also had a large impact."
Rhee stressed, "Given this trend, the role of finance is more important than ever," adding, "Finance is the core infrastructure of the economy that reallocates limited resources to the most productive areas."
Meanwhile, the symposium was held under the theme of "the role of finance in boosting the potential growth rate." Seoul National University professor Cho Sung-uk presented measures to restore trust in the capital market and to stimulate investment, and Hwang In-do, Deputy Minister at the Bank of Korea (BOK), offered an analysis that the long-term growth rate can be raised by 0.2 percentage point through credit reallocation policies.