Korea's Potential Growth Rate Collapses Below 2%… Warning That It Will Barely Cling to 0% by 2056 (2026.02.20)

[The National Pension is not a scheme designed to operate on a horizon of one to two years or even five to ten years.

The system must be designed and administered from an ultra-long-term perspective capable of surveying at least one full generation's lifetime; only then can social conflict—and intergenerational conflict in particular—be minimized.

Norway, which operates one of the world's largest sovereign wealth funds

and produces high-quality oil from the North Sea,

imposes an 18.1% contribution rate yet provides an income replacement rate of only approximately 42%

through a universal public pension scheme covering the entire population—and for good reason.

This is the urgent imperative behind structural reforms across multiple sectors to arrest and reverse Korea's steadily declining potential growth rate!]

(Fitch downgrades to 1.9%; the OECD projects 0% for 2056–2060… the divergence from the United States is already unsettling exchange rates and triggering capital outflows.)

Since taking office in June of last year, President Lee Jae-myung has consistently emphasized his intention to reverse the decline in Korea's potential growth rate as a central pillar of his economic agenda.

However, contrary to the President's campaign pledge to push the potential growth rate back above 3%, assessments now indicate that it has fallen even below the 2% threshold.

There are even projections that around 2056 the potential growth rate will barely remain above 0%, suggesting that the engine of growth itself may run cold.

(Excerpt)

The more serious concern is that the gap in underlying economic vitality—as measured by potential growth rates—between Korea and the United States is widening by the day.

According to the OECD, the United States' potential growth rate stood at 2.40% in 2022, 0.04 percentage points below Korea's, but by 2023 it had risen to 2.44%, surpassing Korea's rate of 2.41%.

The gap was projected to widen further: 2.41% in 2024 (a gap of 0.13 percentage points), 2.20% in 2025 (0.28 percentage points), 2.03% in 2026 (0.32 percentage points), and 1.95% in 2027 (0.38 percentage points), with the United States expected to continue pulling further ahead of Korea's potential growth rate.

This divergence is assessed to intensify over time, such that in 2056–2060, when Korea's potential growth rate is projected to fall to approximately 0%, the United States' average potential growth rate will stand at 1.27%—a gap of 1.26 percentage points.

Unless Korea achieves meaningful innovation, it will become increasingly difficult to close the gap with the United States, which continually renews its economic engine through advanced industries such as artificial intelligence (AI).

This dynamic makes it difficult for policies aimed at encouraging the repatriation of "westward retail investors" (domestic investors holding U.S. equities) to gain traction, and it risks entrenching the currency pressure associated with the outflow of investment capital as a permanent structural problem.

https://www.bizhankook.com/bk/article/31555

Korea's Potential Growth Rate Collapses Below 2%… Warning That It Will Barely Cling to 0% by 2056 (2026.02.20)

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