Korea Is Losing Its Fundamental Economic Strength

Korea’s potential growth rate dropped below five percent.

The Bank of Korea (BOK) warned that without governmental and public efforts, the rate could fall further to below four percent.

According to the report, “The Causes of Korea’s Economic Weakening and the Outlook,” published by the BOK on Sunday, Korea’s potential growth rate fell from an annual average of 6.1 percent in 2000 to 4.8 percent in 2001 to 2004.

BOK estimates the 10-year potential growth rate from this year to 2014will be an average of 4.6 percent and projected that if not enough effort is made to ensure the country’s growth potential, there is a danger the rate could plummet to somewhere near four percent.

According to the analysis, among the three factors that determine growth potential: labor, capital, and productivity, capital contribution was where the greatest dent was made.

Kim Jae-cheon, head of the BOK’s research department, stated, “We will never reach a per capita income of $20,000 if we only try to increase labor and capital input without enhancing productivity.”

Lee Doo-won, economics professor at Yonsei University, pointed out, “Under the current policy, it would be a challenge to maintain even today’s potential growth rate. We need to shift our focus to growth and concentrate on recovering corporate investment sentiment and the investment environment.”

The Korea Development Institute (KDI) had predicted Korea’s future potential growth rate to range from 4.7 to 5.2 percent from 2003 to 2010, and from 4.3 to 4.9 percent from 2011 to 2020.

Kyung-Joon Chung news91@donga.com