OECD projects Korea's potential growth rate to hit record low in 2027

Korea's potential growth rate is projected to fall to a record low next year, according to the Organization for Economic Cooperation and Development (OECD) on Sunday, despite robust exports fueled by a semiconductor boom.

The OECD's latest data shows the country's potential growth rate at 1.52 percent in 2027, down sharply from 1.66 percent this year. Every quarter, the country's potential growth rate is expected to decline further to 1.46 percent in the fourth quarter of next year.

The potential growth rate refers to the potential rate of increase in the GDP, which represents the maximum level of output an economy can sustain by fully utilizing labor, capital and other resources without triggering inflation.

If realized, it would mark the first time Korea's estimated potential growth rate has fallen below 1.5 percent since the OECD began publishing such data.

Korea's potential growth rate has been steadily declining since reaching 3.62 percent in 2012. The figure fell below 3 percent for the first time in 2016, when it stood at 2.93 percent, and dropped below 2 percent last year.

"The decline reflects a combination of population aging, a shrinking labor force, slower capital accumulation and stagnant productivity growth," Park Jung-woo, an economist at Nomura Securities, said.

The outlook contrasts with recent signs of improvement in Korea's economy.

Earlier, the OECD raised its forecast for Korea's real GDP growth this year to 2.6 percent from its previous projection of 1.7 percent.

The upward revision appeared to reflect stronger-than-expected exports, particularly semiconductors, which account for about 40 percent of the country's total outbound shipments.

The latest OECD data suggested that while the semiconductor upcycle is boosting short-term economic growth, it has yet to address the structural factors weighing on Korea's long-term growth potential.

Yonhap