The International Monetary Fund (IMF) has projected that South Korea's potential growth rate will rise for two consecutive years, driven by strong semiconductor exports and increased investment in artificial intelligence (AI). However, structural constraints such as an aging population and declining labor supply persist, raising concerns about whether this growth can translate into broader economic improvement.
According to the IMF's October World Economic Outlook (WEO) released on October 18, South Korea's potential growth rate is estimated to increase from 1.94% last year to 2.14% this year and 2.20% next year. This marks a 0.20 percentage point rise this year, followed by an additional 0.06 percentage point increase next year.
Analyzing historical IMF data, this would be the first time in 40 years that South Korea's potential growth rate has risen for two consecutive years, since 1986-1987. The potential growth rate has been on a downward trend since peaking at 4.05% in 2010, falling to the 2% range in 2018 and the 1% range in 2020. The projected 2.14% for this year is the highest level since 2.23% in 2021.
Potential growth rate refers to the sustainable growth rate that the economy can achieve without significantly increasing inflationary pressures. Unlike the actual GDP growth rate, which fluctuates with economic cycles, potential growth reflects the fundamental strength of the economy, including labor, capital, and productivity.
This forecast incorporates expectations for investment and productivity improvements stemming from the semiconductor boom and the spread of AI. With labor supply difficult to increase in the short term due to aging, improvements in capital investment and total factor productivity are seen as key factors boosting growth potential.
However, there are discrepancies among various institutions' forecasts. The Organisation for Economic Co-operation and Development (OECD) estimated in June that South Korea's potential growth rate would decline from 1.85% last year to 1.66% this year and 1.52% next year. In contrast, the National Assembly Budget Office projected last month in its '2027 NABO Economic Outlook' that the rate would rise from 2.14% last year to 2.22% this year and 2.28% next year. Analysts note that differences in estimation methods and economic outlooks necessitate scrutiny not only of the rebound itself but also of its sustainability.
In international comparisons, South Korea's growth potential is assessed to be relatively high. Based on IMF data, among 27 countries for which potential growth rates can be calculated, South Korea is expected to rise from 12th last year to 7th this year and next. Among the Group of Seven (G7) nations, only the United States is projected to have a higher growth rate than South Korea. The forecast for South Korea's potential growth rate next year is 2.20%, surpassing that of the United Kingdom (1.26%), France (0.85%), Japan (0.84%), and Germany (0.70%).
This outlook is expected to bolster the government's economic growth targets. In July, the government unveiled its '3-4-5 Economic Leap' strategy, aiming for a potential growth rate of 3%, becoming the world's fourth-largest exporter, and achieving a per capita income of $50,000. The IMF anticipates that South Korea's per capita GDP will reach $43,512 this year and exceed $50,000 by 2028, reaching $52,100.
However, whether improvements in macroeconomic indicators will translate into a tangible economic recovery for citizens remains uncertain. Even if the semiconductor and AI sectors drive increases in exports and investment, a lack of spillover effects to the service sector, small businesses, and self-employed individuals could exacerbate disparities between industries.
Experts acknowledge the potential for productivity gains from AI adoption but express concerns that the benefits of growth may concentrate in specific companies and industries. They emphasize the need to consider domestic demand weaknesses and the burdens faced by vulnerable populations.
* This article has been translated by AI.
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