December 23, 2022
SEOUL – A recent Goldman Sachs report was a bitter reality check for South Korea on its plunging birth rate and aging population — chronic challenges with little solutions in sight.
Earlier this month, the US investment bank released a report titled “The Path to 2075,” warning that the Korean economy could be surpassed by nations with smaller economies such as the Philippines, Malaysia, Bangladesh and more by 2075 due to its rapidly declining and aging working population.
The report predicted that Korea’s growth rate will drop from its current 2 percent to 0.8 percent in the 2040s and even fall to minus 0.1 percent in 2060 and minus 0.2 percent in the 2070s. Korea was the only country expected to fall into the minus range for growth among the 34 richest countries mentioned in the report.
Korea’s gross domestic product will reach $2 trillion in the 2030s and $3.3 trillion in the 2060s, but remain at $3.4 trillion in 2075, in contrast to Japan’s $7.5 trillion, the Philippines’ $6.6 trillion, Malaysia’s $3.5 trillion, and Bangladesh’s $6.3 trillion, the report projected.
Local experts also echoed the dismal outlook for the Korean economy, saying it could be outpaced by nations with higher birthrates in terms of size if it fails to address the chronic low birthrate.
“Though there are various factors that affect the economy, population is a crucial factor,” said Kim Ji-yeon, a researcher at the state-run Korea Development Institute who specializes in labor economics.
“As the speed of Korea’s depopulation is so fast, and will speed up even more in the future, its impact on the economy is inevitable,” Kim added.
Kim explained that all nations which have developed to a certain point experience retention in productivity growth, and Korea will be no exception.
All indicators of Korea’s demographic situation emit warning signals.
According to data from Statistics Korea, the country’s total fertility rate – the average number of children a woman bears in her life – was 0.81 in 2021, down from 0.84 the year before. This is nearly half the 1.59 average fertility rate for members of the Organization for Economic Cooperation and Development.
Fewer Koreans are getting married, in addition to the low birth rate. There were 1.11 million newlywed couples who registered their marriages in the past five years, down 7 percent compared to a year ago. It was also the largest drop since 2010.
Of the 1.11 million couples, 871,000 were married for the first time, and 54.2 percent of them had an average of 0.66 children.
In a separate report released in September, the national statistics agency estimated that the Korean population would drop from its current 52 million to 38 million by 2070. Meanwhile, the global population is expected to grow from the current 7.97 billion to 10.3 billion.
“As Korea steps into a phase of depopulation, it is inevitable that the overall economic pie will decrease. It’s not just about the size of the decrease in population, it is the speed,” Yoon Sang-ha, head of the International Macroeconomics Team at the Korea Institute for International Economic Policy, said.
According to Yoon, depopulation would not be as serious if the population decreases “normally,” with fewer gaps between age groups.
“However, the size of the younger population is decreasing at such a fast rate. This will lead to a drastic deterioration in supporting expenses for the elderly, and eventually the younger generation will have less disposable income,” Yoon said.
Yoon warned that the population decrease will bring a shock to the national economy because socioeconomic conflicts related to jobs, the national pension and more will become inevitable.
However, the reduced GDP doesn’t necessarily mean the Korean economy will be crippled.
The Goldman Sachs report projected Korea’s GDP per capita to surge to $101,800 by 2075, compared to $104,300 in Europe and $132,200 in the US.
“As the GDP per person goes up, people’s quality of life will improve,” Yoon said. “People are likely to enjoy a better quality of life. But for the state … things could be difficult.”
Critics say investment in capital and productivity is important for economic growth.
“If the current state is maintained, the Korean economy will be caught up by smaller economies. That is why we need to expand the investment in capital and encourage growth in productivity,” Sung Tae-yoon, an economics professor at Yonsei University, said.
Despite the improvements, immediate action is needed to elevate the birth rate for the Korean economy.
“Of course, the population is not the only priority. Other factors also matter,” said Kim of the KDI. “But, if we fail to address the population issue, there will be clear limits for the Korean economy.”