Challenges mount as South Korea lags behind global growth

The United Nations projects that the global economy will grow 2.7 percent this year. South Korea’s economy is expected to recover modestly from last year but remain well below the global average, with growth forecast at 1.8 percent. If this trend holds, South Korea will trail the United States, whose economy is projected to grow 2.0 percent, for a fourth consecutive year, despite having an economy roughly one-fifteenth the size. While the global economy and the United States are growing at rates above 2 percent, South Korea remains stuck in a low-growth range below that threshold. With domestic interest rates already lower than those in the United States, a sustained growth gap could heighten the risk of capital outflows and weaken incentives for foreign investment.

Speaking at a national briefing on economic growth strategies on Jan. 9, President Lee Jae-myung said this year would mark the first year of fully responsible economic management, projecting growth of around 2 percent. His estimate is more optimistic than the 1.8 percent forecast by the United Nations and the Bank of Korea, reflecting expectations of stronger exports and a recovery in domestic demand. The administration has pledged to raise growth through expanded domestic production, increased investment in advanced industries, and efforts to energize the stock market, but such goals will be difficult to achieve without broad participation from businesses and investors.

The United States, Japan, and China are pouring massive resources into their semiconductor industries, gearing up for what has become a global competition among nations. By contrast, South Korea has yet to pass even a semiconductor special law in the National Assembly, despite the approach of a semiconductor super cycle. The national semiconductor complex in Yongin, envisioned as a flagship production hub, remains bogged down by infrastructure challenges such as power supply shortages, fueling relocation disputes and wasting precious time.

The U.S. economy is also rebounding more strongly than South Korea’s, even as it faces weak job growth and slowing consumption. This resilience reflects the combined effects of tax cuts, interest rate reductions, and aggressive corporate investment in artificial intelligence, semiconductors, and robotics by companies such as Nvidia, Google, Apple, Microsoft, and Amazon. U.S. President Donald Trump has wielded tariffs as a strategic tool to draw global leaders across advanced and core industries into the U.S. market. South Korea cannot deploy tariffs in the same way, which makes it all the more critical to build an investment-friendly business environment capable of preventing corporate outflows and attracting foreign companies.

In the early 2000s, South Korea’s economy had the potential to sustain high growth near 5 percent. However, population decline, an aging workforce, and falling investment and productivity have pushed the potential growth rate down to the high 1 percent range. Without reforms to improve corporate investment conditions, foster high-tech and innovative companies, and strengthen competitiveness among small and marginal firms, President Lee’s pledge to restore a 3 percent potential growth will remain a slogan. Practical measures must be taken to make 2026 the first year of escaping low growth.