"Korean Economy in Crisis, 'Zero Growth' May Become Reality Within 10 Years"

Hankyung Research Institute Claims in Report "Strategies and Vision for Enhancing Growth Rate"
"Potential Growth Rate Significantly Declined After Three Economic Crises"

[Asia Economy Reporter Kim Heung-soon] After experiencing three economic crises?the foreign exchange crisis, the global financial crisis, and COVID-19?the growth potential of the Korean economy has sharply declined, and there is a claim that within the next 10 years, the growth of our economy could halt, resulting in a 'zero growth' scenario becoming a reality.

The Korea Economic Research Institute (KERI), under the Federation of Korean Industries, revealed this on the 27th through a report titled "Strategies and Vision for Enhancing Growth Rates." According to the time series analysis results analyzed in the report, Korea's potential growth rate has steeply declined from 8.3% in the past to around 2.2% recently after going through three economic crises. The report added that if this trend continues, the potential growth rate is expected to enter the 0% range within the next 10 years, which is even lower than the current level.

Long-term Low Growth Trend in the Korean Economy Since the Financial Crisis: A Lost Decade

The report diagnosed that most macroeconomic indicators of our economy, including production, consumption, and investment, show bleak results. For example, the economic growth rate sharply declined from 6.8% in 2010 to about 0.9% in 2020. The private consumption growth rate recorded its lowest point since the foreign exchange crisis, shrinking from 4.4% in 2010 to -5.0% in 2020.

The export growth rate, which was the engine of our economy's growth, also fell from 13.0% in 2010 to -1.8% in 2020. The consumer price inflation rate, which was 2.9% in 2010, dropped to 0.5% in 2020, falling significantly short of the Bank of Korea's inflation target of 2%. During the same period, the youth unemployment rate rose sharply from 7.7% to 9.0%.

"To Sustain Growth, Both Potential and Real Growth Rates Must Be Maximized"

The report cited institutional limitations in growth strategies and environmental factors such as a rigid labor market and a slowdown in technological innovation as the main causes of the decline in potential growth rate. Lee Seung-seok, Deputy Research Fellow at KERI's Economic Research Office, stated, "Our research shows that Korea's potential growth rate is declining at the fastest pace among major global economies," adding, "The main cause of the decline in potential growth rate can be seen as the reliance on quantitative expansion of production factors and imitative technological progress amid limitations in growth policies."

The report also assessed the current state of the Korean economy, noting that while base effects and export booms temporarily obscure economic realities, the situation is precarious, standing at a crossroads between sustained growth and decline. It analyzed that to secure the sustainability of economic growth amid the transition to the Fourth Industrial Revolution, it is urgent to enhance innovation capabilities and simultaneously maximize both potential and real growth rates.

Deputy Research Fellow Lee added, "To build a foundation for sustained growth and restore the growth ladder, bold corporate investments must be induced through regulatory reforms," emphasizing, "Efforts are needed to transition to a flexible labor market that fits the era of the Fourth Industrial Revolution."