## Korea’s Growth Prospects: Overcoming Demographics and COVID-19

_IMF Working Papers, March 26, 2021_

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## Bibliographic details
- Authors: Andrew J Swiston
- Published: March 26, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513575216.001

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### Summary
- Korea’s economy achieved high-income status after several decades of sustained high growth.
- Population aging and shifts in global demand are headwinds for future growth.
- The COVID-19 pandemic adds near-term effects on economic activity and raises the possibility of longer-term scarring.
- Industry-level analysis indicates scope to raise productivity, especially in services where productivity gains have lagged.

### Major findings
- Potential output growth slowed to about 2½ percent before the COVID-19 pandemic.
- Potential output growth would have fallen to 2 percent by 2030, mainly due to demographic factors.
- There is a possibility of scarring from the COVID-19 shock as adjustment frictions from structural rigidities interact with shifts in demand and supply patterns.
- Scarring channels could lower investment and labor force participation.
- Addressing structural rigidities could offset a large proportion of the expected downward pressure on potential output.

### Policy implications and recommendations
- Facilitate structural transformation to provide offsetting upward momentum to potential growth.
- Target reforms that reduce adjustment frictions to limit scarring from demand and supply shifts.
- Prioritize policies to raise productivity in services where gains have lagged.
- Implement measures to support investment and labor force participation during and after COVID-19 to prevent persistent output losses.

### Risks and scenarios
- Demographic-driven decline in potential growth absent offsetting reforms.
- Prolonged adjustment frictions could amplify COVID-19–related scarring, reducing investment and labor force participation.
- Structural reforms that successfully raise productivity, particularly in services, can materially counteract downward pressure on potential output.

*IMF Working Paper No. 2021/092, Andrew J Swiston, March 26, 2021.*

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_Source: https://www.imf.org/en/publications/wp/issues/2021/03/26/koreas-growth-prospects-overcoming-demographics-and-covid-19-50261_