The International Monetary Fund says the Korean economy's potential growth rate will rise for two straight years for the first time in 40 years. iClickArt (Unauthorized reproduction and redistribution of the photo above are prohibited under copyright law.)

By Kang Gahui

The International Monetary Fund (IMF) says the domestic economy's potential growth rate will rise this year and the next for the first time in 40 years.

The IMF said this on Oct. 18 in its World Economic Outlook for October, with Korea's rate estimated to rise from 1.94% last year to 2.14% this year and 2.2% next year, or up 0.2 percentage points this year and 0.06 next year.

Potential growth rate is how fast an economy's potential gross domestic product (GDP) can expand without greatly raising inflationary pressure. Unlike the real GDP growth rate that economic stimulus can boost temporarily, this figure indicates a country's mid- to long-term expansion capacity.

Korea's rate rebounded in 2010 following the 2008 global financial crisis and 2021 amid the base effect from the COVID-19 pandemic. But a rise of two straight years was last seen in 1986-87 during the boom period of "the three lows" -- low oil prices, low interest rates and low KRW-USD rate.

The rebound is attributed to higher facility investment thanks to the semiconductor boom and expected productivity gains with the growing spread of artificial intelligence. Labor and capital inputs along with productivity were cited as other key factors.

The potential growth rate in the IMF report was calculated in reverse based on Korea's real GDP growth rate and GDP gap figure, which measures the difference between real and potential GDP as a share of potential GDP.

kgh89@korea.kr