Trend Korea's potential growth rate trends toward zero in the 2040s

Summary

Under the baseline scenario, Korea's potential growth rate keeps declining and is projected to hover around zero in the 2040s. The authors estimate potential growth in 2025 in the high 1 percent range, easing to the low 1 percent range by 2030. With productivity growth lower than in the past and labour input shrinking, falling returns on capital also slow the growth of capital input. As the labour decline deepens, a slight contraction is expected in the late 2040s. The projection uses a production-function approach built on the latest population, household and national account data.