South Korea's Potential Growth Rate to Fall Below 1.5% Next Year, OECD Forecasts

South Korea's economic potential is shrinking, with its potential growth rate expected to fall below 1.5% for the first time in the fourth quarter of next year, the OECD reported. This decline in fundamental economic strength contrasts with a rosier outlook for overall economic growth, buoyed by strong semiconductor exports.

The OECD's detailed analysis projects a steady decrease in South Korea's potential growth rate, from 1.85% last year to an estimated 1.66% this year and 1.52% next year. The fourth-quarter figures are even more stark, with the rate anticipated to drop from 1.70% in the final quarter of last year to 1.61% this year and a projected 1.46% in the fourth quarter of 2025.

Potential growth rate, a key indicator of a nation's long-term economic capacity and health, represents the highest sustainable growth rate achievable without triggering inflation. South Korea's potential growth rate has been on a downward trend since reaching 3.62% in 2012, signaling a structural challenge for the economy.