S. Korea’s potential growth rate to fall to 1% level in 2030s: IMF report

The International Monetary Fund (IMF) predicted South Korea’s potential growth rate to fall to the 1 percent range in 2030s due to the country’s rapidly aging population and low productivity.

It recommended swift structural reforms as well as more expansionary fiscal policy to aid faster growth.

In a report released by the IMF on Sunday, the IMF projected Korea’s real gross domestic product, which hit 3.2 percent last year, to ease to 3.0 percent this year and slow down gradually onwards - 2.9 percent in 2019, 2.8 percent in 2020, 2.7 percent in 2021, and 2.6 percent in 2022.

The country’s potential growth rate will also dip to annual average of 2.2 percent in 2020s and then to the 1 percent level in 2030s due to languishing productivity and shrinking labor force from the rapidly increasing aged population, the agency predicted.

The agency said “a combination of domestic and global factors-both structural and cyclical-have resulted in a slow productivity growth,” adding that the weakening trend to last for some time.

To boost potential growth, the Korean government should seek to reform the labor market that could provide more incentives to lure active labor force as well as expand fiscal spending. It said “increasing childcare spending and strengthening active labor market policies” would help the country’s potential growth to increase by 0.6 percentage point a year on average for a decade.

“Strengthening social protection would boost consumption-led growth and contribute to rebalancing the economy,” the agency also proposed.

The IMF published the report on its assessment of annual talks with Korean policy makers.

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