In 1986, South Korea enjoyed a boom driven by what was known as the "three lows" — low oil prices, low interest rates and a weak dollar. The country posted its first current account surplus and achieved double-digit growth for three straight years, while its potential growth rate rose two years in a row. The boom did not last. When external conditions shifted, growth slowed and the economy was labeled "high-cost, low-efficiency."
Four decades later, a welcome change is emerging again. In its October World Economic Outlook, the International Monetary Fund raised its forecast for Korea's growth this year by 0.7 percentage points to 3.3%, nearly double the 0.4 percentage point average upgrade for advanced economies. The IMF also estimated that the potential growth rate will rebound from 1.9% last year to 2.1% this year and 2.2% next year. If two consecutive years of increase materialize, it would be the first such run since the "three lows" boom 40 years ago.
Per capita gross domestic product is also projected to top $43,000 for the first time, widening the gap with Japan to $8,000. Fiscal and financial indicators are sending positive signals as well. The IMF's forecast for the general government debt ratio fell 7.1 percentage points from its previous estimate to 47.3%, less than half the 107.8% average for advanced economies.
The won's strength and the stability of government bond yields are particularly notable. While the dollar gained 3.5% from the start of the year, the won appreciated 8.6%. The rise in 10-year government bond yields was also smaller in Korea, at 78 basis points, than in the United States at 97, Japan at 82 and Britain at 83. One basis point equals 0.01 percentage point.
A stronger won can weigh on export prices, and rising rates can raise investment costs. Even so, the simultaneous rebound in growth and potential growth, along with the economy's firm recovery, shows that international confidence in the soundness of public finances and the competitiveness of advanced industries is providing support.
This rebound must not end as a temporary boom, as it did 40 years ago. Rather than relying on external conditions alone, Korea must convert strong exports of artificial intelligence and semiconductors into bold investment and productivity innovation. The Lee Jae-myung administration's growth-focused policies and investment in advanced industries must feed a virtuous cycle that strengthens the economy's underlying fitness. The rebound in the indicators is only a beginning.
Korea must also prepare for risks that could strike at any time. Excessive dependence on the semiconductor boom could leave growth vulnerable to shifts in the global economy.
The decline of Japan's semiconductor industry should serve as a cautionary lesson. In the 1980s, Japan commanded more than half of the world semiconductor market and boasted overwhelming competitiveness, but it lost that leadership to trade friction with the United States and to pursuit from Korea and Taiwan. Korea must broaden its industrial ecosystem into AI chips, advanced packaging, and materials, components and equipment, and must continuously cultivate new engines of growth.
Gaps in everyday economic life also persist. Large companies are enjoying the boom, but small and medium-sized enterprises and self-employed business owners still struggle with cost burdens. Investment and talent flock to the Seoul metropolitan area, while jobs and population shrink in the regions. If the economy grows but people's lives stay where they were, it cannot be called a genuine recovery.
Three things must be prepared from now on. First, growth engines must be underpinned by law and institutions. A mega special-zone bill to foster advanced industries such as AI, semiconductors and biotechnology, and to promote locally led growth, should be given priority in this regular session of the National Assembly. Restoring potential growth to the 3% range must be achieved through investment, productivity innovation and structural reform, not slogans.
Second, Korea must build both a fiscal safety net and seed money for growth. The revenue gains brought by the semiconductor boom will not last forever. The country should establish a "future response fund" that serves as a buffer against revenue swings and as seed capital for investment in future industries. It must build a sturdy "fiscal dam" to support the economy during downturns.
Third, the fruits of growth must flow into people's lives. The performance of large companies must spread to smaller firms, the growth of the metropolitan area must spread to the regions, and productivity gains in advanced industries must translate into quality jobs and higher household income. The 2027 budget should be that channel.
The 1986 boom arrived on a favorable wind, but today's rebound must be completed into sustainable growth by our own hands. The improvement confirmed in the data must be connected to better jobs and real change in people's lives. That is the genuine economic revival the National Assembly and the government must now deliver.