[Why&Next]"Even with future export growth, negative growth expected... New immigrant employment must increase by 1% annually"

Soci?t? G?n?rale (SG) Report
Growth Rate Decline Inevitable Due to Aging... Growth Sustained by Labor Productivity Despite Reduced Working Hours
Projected Average Annual Growth Rate of -0.2% from 2035 to 2045, Greater Impact from Declining Middle-Aged Population
2022 Migrant Worker Ratio 3.1%... Immigrant Employment Needs to Increase by 1% Annually

Even if a substantial semiconductor boom continues and the export boom persists, without an active immigration policy, South Korea's economic growth rate is bound to decline due to population aging, according to an analysis.

According to a recent report titled "Revisiting South Korea's Long-Term Growth Prospects" released by the French investment bank Soci?t? G?n?rale (SG), even assuming a gross domestic investment rate (investment ratio relative to GDP) exceeding that of the Group of Seven (G7) countries and continued booms in semiconductors and exports, South Korea is projected to record an average annual growth rate of 1.3% from 2022 to 2035 and -0.2% from 2035 to 2045.

This updates SG's forecast from 2016 after seven years, which had predicted South Korea's GDP growth rates to be 1.8% for 2015?2025, 0.5% for 2025?2035, and -0.2% for 2035?2045.

The report explained, "According to actual data, the GDP growth rate from 2015 to 2022 averaged 2.5%, stronger than expected," adding that "this was because labor productivity supported the decline in labor input caused by aging."

Despite the deepening low birthrate, the economic activity participation rate rose, maintaining an increase in the economically active population. This was based on an increase in elderly employment rates. Since the elderly tend to work fewer hours, such changes ultimately reduce total labor input (hours worked per person). Although the reduction in labor input should have lowered the overall growth rate, the maintenance of labor productivity sufficient to offset this, due to factors like the export boom, allowed for higher growth rates.

Even as hours worked per person continue to decline, for the country to sustain meaningful economic growth, it must increase 'capital stock' through investment or enhance 'total factor productivity' via technological innovation to raise labor productivity.

However, the study found that even under very optimistic assumptions, negative growth (an average annual -0.2% from 2035 to 2045) cannot be avoided. This means the impact of population shrinkage is growing to a level where relying on labor productivity is no longer feasible. For example, the report assumed the gross domestic investment rate (the ratio of fixed investment and inventory investment to gross national disposable income) would rise from 32.7% in 2022 to 36.7% in 2045, which is much higher than the levels of G7 countries, which ranged between 18.8% and 26.6% in 2022. The International Monetary Fund (IMF), on the other hand, has predicted that this ratio will decrease in South Korea in the future.

The report projected that the core age group causing the decline in labor input until 2045 will be the middle-aged population. Even if the employment rate of the youth increases, the effect is expected to be limited because their proportion within the working-age population has already decreased. Economist Seoktae Oh, who authored the report, stated, "The decline in the middle-aged population, expected to decrease by 1% annually from 2022 to 2035 and by 1.5% annually from 2035 to 2045, will be the key factor in reducing labor input," adding, "Increases in employment among youth, women, and the elderly will not offset the impact of the middle-aged population decline."

Within this outlook, the report concluded that the only way for South Korea to guarantee GDP growth is through an active immigration policy. Economist Oh explained, "To raise GDP by 1 percentage point annually, labor input must be increased by 1% each year by employing migrant workers," adding, "This means that the proportion of migrant workers, which accounted for 3.1% of total employment in 2022, would rise to 22% by 2045."

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