<예정처> "Potential Growth Rate 2.3% by 2025... Technology and Regulatory Innovation Contribution First Time in 0% Range"

South Korea's Economic Growth Rate Forecasted at 4.1% This Year, 3.0% Next Year... "Inflation Expected to Rise Around 2.0% in the Second Half"

[Sejong=Asia Economy Reporter Son Seonhee] A forecast has emerged that South Korea's potential economic growth rate will remain at an average annual level of 2.3% until 2025. While the potential growth contributions of labor and capital have significantly declined, the contribution from technological advancement and regulatory innovation has entered the 0% range for the first time.

On the 1st, the National Assembly Budget Office (NABO) stated in its "2022 and Medium-Term Economic Outlook" report that "amid a continued decline in total factor productivity, the potential growth contribution of employment has increased, but the contribution of capital has gradually decreased, resulting in an expected average annual growth rate of 2.3%." According to NABO, the potential growth contributions by production factors from 2021 to 2025 are labor 0.1 percentage points, capital 1.3 percentage points, and total factor productivity 0.9 percentage points.

Among these, the potential growth contribution of total factor productivity fell below 1% for the first time. Total factor productivity represents the productivity of "invisible" factors such as technological advancement, regulatory innovation, and legal systems, excluding visible production factors like labor, capital, and raw materials. Since growth through labor and capital eventually faces limits, invisible growth drivers inevitably become crucial elements in enhancing potential growth capacity. However, this aspect is also significantly declining. According to NABO, the potential growth contribution of total factor productivity, which was 2% in the 2000s, dropped to the 1% range in 2011 and has now entered the 0% range after ten years.

Professor Sung Tae-yoon of Yonsei University's Department of Economics said, "This means that labor market efficiency is declining and that resources are not being efficiently allocated overall, including technological innovation," adding, "The decline in total factor productivity is a situation that should be a cause for concern."

However, NABO forecasted that after the shock caused by the COVID-19 pandemic, the South Korean economy will recover its growth momentum centered on investment, somewhat mitigating the sharp downward trend in potential growth rate. It also projected South Korea's economic growth rates to be 4.1% this year and 3.0% next year. Inflation is expected to rise around 2% this year as service and energy prices continue to increase.

In the report, NABO stated, "Last year's economic growth rate contracted for the first time due to employment shocks and a contraction in private consumption activities caused by the COVID-19 pandemic, but gross fixed capital formation increased due to export booms in sectors such as semiconductors and automobiles, as well as investments in new growth industries," adding, "Following the COVID-19 pandemic, growth is expected to recover through increased economic participation of the elderly and expanded investment."

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