S. Korea’s potential growth cut

South Korea’s potential growth is projected to be cut by more than 0.5 percentage points, due to the economy’s recent sharp loss of growth momentum. “Potential growth” refers to the extent to which an economy could raise gross domestic product using labor, capital and technology without causing inflation.

With the population aging, the working population has fallen and working hours have also contracted. On top of that, the pace of capital increase, on which production capacity hinges, has slowed and productivity has sharply declined. According to the Bank of Korea(BOK) and a host of think tanks recently, the nation’s potential growth dropped more than 0.5 percentage points compared to the initial estimate. The potential growth was estimated at 3.6 to 3.7 percent in 2013 but several research institutes including the central bank and t h e Korea Development Institute (KDI) have been cutting the estimates one after another. The KDI is said to have recently lowered the estimate of potential growth to around three percent.

The BOK has also been considering reducing the estimate of the potential growth, from the existing 3.6 percent level to a level between three percent and 3.5 percent.

The National Assembly Budget Office, an economic research institute under the National Assembly, and the Hyundai Research Institute, a private research center, predict the potential growth at between three percent and 3.5 percent. A researcher in the LG Economic Research Institute, explained, “As labor input has rapidly declined and productivity of the construction and manufacturing industries, which have thus far led the growth, has declined, far lower potential growth is inevitable.”.

korean-electronics.com | Blog Magazine of korean electronics, brands and Goods

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