South Korea's economy, projected to grow more than 3% this year on a semiconductor boom, could slip into negative growth from 2030, according to an analysis presented at an economic forum. Once the chip supercycle ends, economists warned, the underlying weakness of the economy will be laid bare. They called for reforms to foster creativity among Koreans and a shift in industrial policy to restore growth momentum.
Speaking at a forum titled "The Korean Economy: Where We Stand, Where We Must Go," co-hosted on the 12th by the Korea Development Institute (KDI), the NEAR Foundation and the Korean Economic Association at the Korea Chamber of Commerce and Industry in Seoul, KDI research fellow Kim Mi-ru said the country's long-term growth rate has fallen by about 1 percentage point every five years since the early 1990s. "If this trend continues, it will enter the 0% range this year and could turn negative around 2030," she said.
Falling productivity was cited as the biggest factor behind the erosion of long-term growth capacity. Korea's average annual growth rate slowed to 3.1% in 2011-2019 from 4.7% in 2001-2010. Slower productivity gains accounted for 67% of that decline, the analysis showed.
The productivity slowdown is most evident in manufacturing, the mainstay of the Korean economy. Kwon Nam-hoon, president of the Korea Institute for Industrial Economics and Trade, noted that exports from industries other than semiconductors and automobiles have been flat for about 15 years.
Participants said education that cultivates creativity is needed to strengthen the country's industrial competitiveness. "In the age of AI, the ability to think is critical to reversing the decline in long-term growth," KDI President Kim Se-jick said. "We must guarantee property rights and rewards for ideas, and build education and selection systems that develop creativity."
Others called for a change in the direction of industrial policy. Kwon proposed stabilizing supply chains, tailoring responses to the characteristics and circumstances of individual industries, and expanding ecosystems around key industries.
Kang Sung-jin, president of the Korean Economic Association, said growth strategy should focus on channeling accumulated industrial and research capabilities into economy-wide productivity gains and better quality of life. He stressed the need to redefine the roles of the market and the government.