The Bank of Korea Says "South Korea's Potential Growth Rate Fell to Around 2% in 2021-2022"

'Re-estimation of Potential Growth Rate of Our Economy Amid COVID-19'
Vulnerable Employment Conditions, Need to Increase Economic Participation Rate of Women and Youth

[Asia Economy Reporter Jang Sehee] The potential growth rate of the Korean economy for this year and next year has been found to have declined to around 2%. This is about 0.3 to 0.4 percentage points lower than the 2.5?2.6% forecast made in August 2019.

Jung Wonseok, Head of the Forecasting Model Team at the Bank of Korea's Research Department, along with researchers Jang Junho and Kim Cheolju, stated in the BOK Issue Note titled "Re-estimation of Our Economy's Potential Growth Rate Considering COVID-19" on the 13th that "the potential growth rate of our economy is estimated to have declined to around 2% for this year and next year." The factors contributing to the decline in potential growth rate include a decrease in the working-age population, deterioration in total factor productivity, and a reduction in labor input.

Regarding the potential growth rate for this year and next, it was analyzed that the impact of the COVID-19 shock continues, and the decrease in labor input due to the decline in the working-age population acted as a factor lowering the potential growth rate. Total factor productivity was found to have deteriorated due to weakened supply chains, increased adjustment costs from the expansion of remote work, and hysteresis effects caused by structural unemployment.

The face-to-face service industry, which was impacted during the COVID-19 period, also partially influenced this. Labor input decreased significantly as female labor force participation dropped sharply due to closures in the face-to-face service sector. It was analyzed that not only the worsening employment of married women but also the significant increase in involuntary unemployment among the elderly (ages 55?64) acted as additional factors.

The Bank of Korea evaluated that "while the decrease in the working-age population and ongoing structural influences have been factors, the worsening employment situation and the decline in service industry production capacity were major contributors to the decline."

The Bank of Korea emphasized the need to effectively respond to changes in the economic structure going forward. The Bank stated, "It is most important to strengthen support for new growth industries and improve the investment environment for companies," and stressed that "policy efforts are needed to increase the economic activity rates of women and youth, whose employment conditions have become vulnerable due to the spread of infectious diseases."

This content was produced with the assistance of AI translation services.