S Korea's growth rate likely to fall to zero range by 2040s

Seoul: Bank of Korea (BOK) Governor Rhee Chang-yong warned on Tuesday that South Korea's potential growth rate could fall to the zero per cent range by the 2040s, stressing the need to efficiently allocate financial resources to boost the growth potential. Rhee made the remarks in a speech at a BOK symposium co-hosted with the Korean Finance Association in Seoul, reports Yonhap news agency.

"The country's potential growth rate was around 5 percent in the early 2000s but has recently dropped to below 2 per cent. If the current trend continues, it could fall to the zero percent range by the 2040s," Rhee said. "It has largely been driven by low birthrates and rapid population aging, which have reduced the working-age population, while corporate investment and innovation to enhance productivity have not been sufficient to offset these trends," he added. Rhee also pointed to "inefficient" allocation of resources, which, he said, has prevented capital from flowing into high-productivity sectors.

"The role of finance is more important than ever, as finance serves as essential infrastructure that reallocates limited resources to the most efficient sectors, which can drive innovation and productivity growth," the central bank chief said.

According to a BOK analysis, the country could raise its long-term economic growth rate by reducing the share of household credit relative to gross domestic product (GDP) and redirecting funds toward productive sectors, such as corporate lending.