South Korea’s annualized growth rate was sustained at 2,00 percent from 2010 to 2019, significantly slowed from 3.6 percent average in the previous decade, due to weakening in productivity and investment, the central bank observed.

According to a report released by the Bank of Korea (BOK) on Thursday, the nation’s annual trend growth rate in per capita gross domestic product (GDP) came at 2 percent from 2010 to 2019, down 1.6 percentage points from 3.6 percent in the 2000s.

The trend rate of economic growth is the average economic growth factoring out the impact of cyclical elements and temporary crisis.

The trend growth had sharply dropped from 7.7 percent in the late 1980s to 4 percent in 1998, mainly because the end of the booming era on weak U.S. dollar, oil prices and interest rate dragged down the total factor productivity and average working hours declined after the revision of the labor standard law in 1989.

The rate once again dipped from 4.4 percent in 2001 to 2 percent in the early 2010s due to the weakened capital expenditure by businesses with the fizzling IT boom.

It has been stagnated at around 2 percent since them because of the sluggish productivity and capital growth. Researchers and economists said productivity has weakened despite technological development because it takes time for new technologies to fully pay off in the overall economy. The BOK said the capital stock has been flat as companies have become timid to make bold investments after the 2008 global financial crisis that exacerbated uncertainty.

The central bank advised that the country needs to strengthen research and development (R&D) in artificial intelligence (AI), deep learning and renewable energy to boost the trend growth rate. “The investments could take time to produce tangible productivity growth, so we should make efforts to enhance investment efficiency,” said Lee Nam-gang, deputy head of economic research division at the BOK. “We also need to invest in creating new products and business models using technologies related to AI and renewable energy to help the new technologies to penetrate deeper into the society.”

By Choi Mira

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