"Korea is not the time to worry about other countries"… Japanese economic paper promoting 'Korean Peakron'

Some in Japan's Economic Circles Eye 'Korea's Peakron'
"Aging Workforce Decline... Growth Rate Also Stagnant"
"US Rises While We Fall"... Bank of Korea Also Concerned

Within some circles of the Japanese economic community, the 'Korea Peak Theory' is emerging and attracting attention. The Korea Peak Theory suggests that South Korea's economic growth has essentially reached its peak and may enter a prolonged stagnation or decline in the future. The basis for this is the decrease in potential growth rate caused by aging population.

On the 13th (local time), the Japanese economic media outlet 'Money1' published an article titled "Korea is Finished." The outlet pointed out, "While Korean media use the term 'Peak China' regarding the Chinese economy, Korea should not be worrying about other countries."

The media presented data on South Korea's Gross Domestic Product (GDP) growth rate, which has been decreasing annually, as evidence supporting the 'Korea Peak Theory.' South Korea's GDP growth rate averaged 8.88% in the 1980s but declined sequentially every decade. It recorded 7.30% in the 1990s, 4.92% in the 2000s, and 3.33% in the 2010s.

Workers commuting to work

For the 2020s, only data from the first four years, 2020 to 2023, are available. Even so, the growth rate sharply dropped to 1.90%. If South Korea's economic growth rate continues on this downward trajectory, there is concern it could fall to the low 1% range.

The background for the rise of the Korea Peak Theory lies in the sharp decline in potential growth rate caused by a shrinking labor force due to aging. Potential growth rate is the maximum growth rate an economy can achieve without triggering inflation. The Organisation for Economic Co-operation and Development (OECD) forecasts South Korea's potential growth rate to decrease to 1.7% next year.

Additionally, according to a recent report by Goldman Sachs Global Investment Research, South Korea ranked 12th globally in nominal GDP as of last year but is expected to gradually fall out of the top rankings (below 15th) by 2050 and fail to be ranked within the top tier by 2075.

The issue of the plummeting potential growth rate is already drawing attention domestically. Earlier, on the 19th of last month, Lee Chang-yong, Governor of the Bank of Korea, expressed concerns about South Korea's growth rate during a press conference following the base interest rate decision.

Governor Lee stated, "Even if the neutral interest rate rises due to the robust U.S. economy, South Korea's potential growth rate may decline because of population aging over the next 10 to 20 years," adding, "This means the equilibrium interest rate could enter a downward phase. If the U.S. rate goes up while ours goes down, it is unclear what changes might occur."

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