The Organisation for Economic Co-operation and Development (OECD) has lowered South Korea’s growth projection for 2026 to the one percent range.

In its revised outlook on Monday, the OECD forecast Korea’s potential gross domestic product (GDP) growth rate at 1.98 percent for 2026, down from this year’s 2.02 percent and breaking the two percent threshold. Korea’s potential growth rate, which stood at 3.0 percent in 2017, has declined by more than one percentage point over the past decade, the seventh-largest drop among the 37 OECD member countries.

The potential growth rate reflects the maximum pace of expansion an economy can sustain without fueling inflation and indicates the fundamental strength of the economy. The fall into the one percent range signals that Korea’s long-term growth potential is structurally weakening. An aging population and shrinking workforce, coupled with reduced capital investment and stagnating technological innovation, have weighed on labor and capital inputs and dragged down total factor productivity.

Other domestic forecasts have also projected growth near the one percent range. The National Assembly’s budget office projected a 1.9 percent potential growth rate for 2025 in March, while the Korea Development Institute (KDI) forecast an average of 1.5 percent for 2025 to 2030 in a medium- to long-term analysis released last week.

In its May Economic Trends report released on Monday, KDI stated that the Korean economy is now showing key indicators of a “slowdown,” shifting from its earlier description of “downward pressure,” a sign that stagnation is beginning to materialize.

With major institutions aligning on these projections, concerns are growing that Korea is entering a long-term downturn rather than a short-term correction. Sluggish construction activity and declining exports due to pressure from U.S. tariff increases, are weighing on both domestic and external demand. Domestic consumption also remains weak. Despite lower individual consumption taxes, retail sales excluding passenger cars rose only 0.5 percent while spending in the hospitality and food service sectors fell.

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