Long-term Economic Growth : Projection and Implications

■ According to the analysis, the declining growth rate of the Korean economy since the global financial crisis was mainly attributable to the slowdown in productivity improvement.- During 2001~10, the slowdown in capital supply growth was the main driver of falling economic growth.- In comparison, the contribution of labor supply to growth remained relatively steady in 1991~2019.■ It is projected that the economic growth rate of Korea will slump to 0.5% in 2050 as the growth starts to slow gradually from the 2020s due to demographic changes like population decline and rapid population aging.- In 2050, the per capita GDP growth rate is expected to stand at 1.3% due to the accelerating pace of population aging, which causes decreasing working-age population and an increasing share of the elderly with low labor force participation.- This long-term growth projection is based on the premise that Korea’s productivity will maintain a 1% growth after a partial rebound from its lowest (0.7%) in 2011~19.- Meanwhile, the potential growth rate of the Korean economy will reach a 2.0% level over the next five years (2023~27).■ The Korean economy needs to mitigate the negative impacts of demographic changes by actively pushing for structural reforms to enhance productivity.- Institutional reforms in trade openness and regulatory rationalization aiming to boost Korea’s economic vibrancy are necessary to achieve higher productivity.- Employment conditions should improve to facilitate the active participation of women who, despite high productivity, typically stay out of the labor force due to childbirth and rearing, as well as elderly citizens whose share is rapidly increasing. Also, a reduction in labor supply needs to be countered by actively accepting foreign workers.- At the same time, continued policy efforts are needed, with a particular focus on improving the qualitative capability of human capital through educational reforms.■ Furthermore, the stance of macroeconomic policy needs to reflect the slowing pace of the long-term economic growth.- While efforts to strengthen the growth potential are of reasonable necessity, the government should not be myopic and focus only on short-term stimulus in seeking a goal that greatly exceeds its growth potential