Korea`s potential growth rate to near 3 pct. in 2050: report

Despite the impact of the rapidly aging population, Korea`s potential economic growth is expected to reach close to 3 percent in 2050 boosted by a rise in female employment, the Royal Bank of Scotland said.

The Korea Center for International Finance, based on findings by the bank released June 13, said Tuesday that the country`s potential economic growth rate will plunge to 3.1 percent in 2023, but the downward movement will stabilize at 2.5 percent by 2050. The economy grew an estimated 4.2 percent last year, the bank said.

If female employment rises in Korea and boosts the labor participation rate to that of the U.K., Korea`s potential growth rate could rise another 0.3 percentage point. Thus potential growth could reach 2.8 percent by 2050.

The economic participation rate of women was 49.7 percent in Korea last year, sharply down from 73.1 percent for men.

The Scottish bank`s projection is more optimistic than that of the Organization for Economic Cooperation and Development (1 percent) for 2031. This outlook would be possible if Korea`s labor productivity and capital accumulation were not influenced by population aging, the bank added.

The impact of the aging population and fiscal soundness on asset prices will be limited, the report noted. Tax revenue accounts for a small portion of Korea`s GDP, giving room for tax hikes, while inbound investment to Korea, especially from China, will also boost domestic asset prices.

Korea`s labor population will start declining from 2016 and the average age of the people is expected to be the oldest in the world by 2045 at 50, the report added. As an aging population reduces savings, the country`s current account will shift to a deficit in 2034, with the shortfall accounting for 4 percent of GDP by 2050.

jarrett@donga.com