South Korea's economic growth is being impeded by COVID-19 pandemic-induced contractions.
According to data from the Bank of Korea on Monday, the potential growth rate for this year and next has been slashed by point-two percentage points to two percent due to COVID-19.
Potential growth rate refers to the maximum possible rate an economy can achieve without triggering inflation.
The rate has been on a steady decline due to a shrinking working-age population and mounting household debt.
However, the pandemic has caused the nation's potential growth rate to decline further.
"Potential growth rate is calculated based on the projection of three elements: capital input, labor input, and total factor productivity… which largely represent technological improvements. However, as COVID-19 has taken its toll on many aspects of the Korean economy, especially worker participation in the labor market, the pandemic has dragged down the country's potential growth rate by point-two percentage points."
The central bank said that to bring Korea's potential growth rate back to pre-pandemic levels, government efforts are needed to minimize the impact on businesses especially those which rely on in-person interactions such as those in the service sectors.
It also added that it is necessary to secure and nurture new growth industries.
Seo Eunkyung, Arirang News.