Of the G20 economies, South Korea has the worst demographic prospects, worse even than Japan, on some measures.
The ‘medium variant’ of the United Nations’ latest population projections sees the overall population halving in the next sixty years. The population of working age is set to decline to an even greater extent, by far the greatest decline of any G20 economy. The medium variant allows for some immigration, but on the United nations’ estimates that has relatively little effect.
Given that population trends (the total population and the population actually working) is the key driver of long-term economic growth, the concerns are very real.
One important study, by Michael Clemens at the PIIE, is more optimistic on the extent to which immigration can prevent this decline. He sees enhanced labour migration to Korea is necessary, sufficient, and feasible to avoid the decline into low or negative economic growth which many expect. That is a lesson not just for Korea but for other advanced economies facing an ageing, shrinking population.
Until there is evidence of that happening, however, we see Korea’s potential GDP growth rate at only around 1.4% p.a. Coincidentally, or not, that is the IMF’s GDP growth forecast for 2026.