[2023 IPR Forum] "Korea's Potential Growth Rate Reaches 1%... Asset Adjustment Essential in Low Growth Phase"

Professor Kim Young-ik, Graduate School of Economics, Sogang University

Professor Kim Young-ik of Sogang University Graduate School of Economics delivered a lecture at the ‘2023 Asia Economy IPR Forum’ held on the 19th floor of the Korea Press Center in Jung-gu, Seoul, on the 8th, stating, "As the birth rate declines, the labor population is decreasing, and as a result, our country's potential growth rate has entered the 1% range," adding, "Since the domestic economy has entered a phase of structural low growth and low interest rates, a different asset allocation from before is necessary."

Professor Kim Young-ik of Sogang University Graduate School of Economics is giving a lecture on the topic "Global Financial Market Outlook - Crisis and Opportunity" at the 5th Asia Economy IPR Forum held on the 8th at the Press Center in Jung-gu, Seoul. Photo by Yoon Dong-joo doso7@

He said, "For the economic growth rate to rise, total factor productivity, which plays an important role in determining the potential growth rate, must increase," and argued, "In the case of our country, social grand compromises between labor and management are difficult, and the workforce is also declining, so the economic growth rate will fall further."

Professor Kim predicted that as the economic growth rate declines, interest rates will also fall further. Although liquidity surged after COVID-19, causing inflation and currently maintaining a high interest rate level, in the long term, the economy will not be able to sustain this rate, leading to a decline. The fact that companies are reducing investments and focusing more on savings is another reason why interest rates are expected to drop further. Professor Kim Young-ik explained, "As household and corporate loan demand decreases, banks will have no choice but to expand their bond holdings," adding, "With capital supply exceeding demand, the economy will structurally settle into a low-interest-rate environment."

Professor Kim emphasized that as low growth and low interest rates become entrenched, a readjustment of household assets is necessary. He suggested restructuring from tangible assets like real estate to financial assets such as stocks. Professor Kim Young-ik said, "In the long term, stock prices tend to rise above nominal GDP, but when compared to nominal GDP, our country's stock prices are undervalued," adding, "There is a significant need to increase interest in the stock market rather than real estate, which is expected to decline further." In fact, the appropriate KOSPI relative to last year's nominal GDP was 2,857, which is about 22% undervalued compared to the year-end index of 2,236. Assuming nominal GDP grows by 3% this year, the appropriate KOSPI would be 2,965.

Regarding the U.S. market, which Korean investors frequently seek to invest in to the extent of coining the term ‘Seohak Gaemi’ (Western stock ants), he recommended a conservative approach. Professor Kim Young-ik explained, "Considering the expanding scale of U.S. debt and internal and external imbalances, the economic situation is unlikely to improve," adding, "Although the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), and the World Bank (WB) all forecast an increase in major countries' economic growth rates next year, only the U.S. is expected to see a decline." He further noted, "Recently, the U.S. announced the resolution of the debt ceiling negotiations and plans to issue about $1 trillion in Treasury bonds, which will absorb market liquidity and limit the rise of the stock market."

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