OECD further cuts Korea's potential growth rate

South Korea's potential economic growth rate may have permanently been reduced, apparently because of a steady decline in its workforce and productivity, according to an OECD report Tuesday.

According to the report, South Korea's potential growth rate for the year is estimated at 2.5 percent, down 0.2 percentage point from a year earlier.

A potential growth rate refers to the maximum possible rate an economy can grow without triggering inflation.

South Korea's rate has been on a steady decline at least since 2010, when it gained 0.1 percentage point from a year earlier to 3.9 percent. The rate dipped to below the 3 percent mark for the first time in history in 2018.

The OECD estimated the country's potential growth rate in 2021 at 2.4 percent.

"A drop in the potential growth rate is inevitable in the long run, considering the trend in the country's economic changes," said Joo Won, a researcher at Hyundai Economic Research Institute. "A low growth rate of around 2 percent indicates South Korea may have fallen into the trap of low growth, instead of a temporary drop in the growth rate."

Experts here cite the rapid drop in the working age population as one of the key reasons for the country's diminishing growth potential.

South Korea has one of the world's lowest birthrates, which also makes it one of the fastest aging societies.

Its working age population, or people aged between 15 years and 64 years, dropped 0.3 percent from a year earlier in 2017, marking its first-ever on-year decline.

The local economy expanded 2 percent from a year earlier in 2019, the slowest since 2009, when Asia's fourth-largest economy grew 0.7 percent on-year on the heels of the 2008 global financial crisis.

The South Korean economy is expected to grow 2.3 percent this year, according to the Bank of Korea, again marking the slowest on-year growth since 2009 except for last year. (Yonhap)