A projection said Korea's potential growth rate will fall to the mid-1% range next year. The potential growth rate is the maximum rate of growth a country can achieve by mobilizing all its production factors without causing inflation. It serves as an indicator of the economy's underlying strength. Considering that last year's potential growth rate was close to 2%, it has turned down this year.
According to the Organisation for Economic Co-operation and Development (OECD) on the 26th, Korea's potential growth rate is estimated at 1.71% this year. That is down 0.21 percentage points from last year's 1.92%. The OECD also expects it to fall further next year to 1.57%. That would be the lowest on record.
The OECD has steadily revised down Korea's potential growth rate since 2012 (3.63%). Since last year it has fallen below 2% and has not rebounded. In 2023 it was even overtaken by the United States. The gap with the United States has widened year by year: 0.03 percentage points in 2023, 0.13 percentage points in 2024, 0.28 percentage points in 2025, 0.31 percentage points this year, and 0.38 percentage points next year.
There is also a projection that Korea's real gross domestic product (GDP) will fall short of potential GDP. According to the International Monetary Fund (IMF), the GDP gap, which shows how real GDP compares with potential GDP, is estimated at –0.9% this year and –0.63% next year. That would mark five straight years of negatives since 2023 (–0.21%). A negative GDP gap means production factors such as capital equipment and labor are not being fully utilized.
Structural reform is being discussed as a solution to this situation. Former Bank of Korea (BOK) Governor Rhee Chang-yong said in his farewell address on the 20th, "It would be good to continue studying medium- to long-term tasks to resolve the structural problems facing our economy, such as education, housing, balanced development, youth employment, and old-age poverty." Bank of Korea (BOK) Governor Shin Hyun-song also said, "We must play an active role in the structural reform agenda of our economy."