The collapse of the birth rate of South Korea threatens growth

South Korea is watching a demographic freight train. The country, known as one of the “four Asian tigers” for its dazzling economic ascent of post-war poverty, is faced with a demographic cliff that could block growth in two decades, warn studies.

The Korean Bank in 2024 provided that the country’s birth rate will be one of the factors that will grow in a prolonged slowdown in the 2040s.

A distinct study of the Korea Development Institute in May said that demographic changes will continue to hang on potential growth, which could fall to zero in the 2040s. In its projections, the economy of South Korea could contract by 2047 in a neutral scenario – or from 2041 in a pessimistic scenario.

The birth rate of South Korea currently amounts to 0.748 in 2024, a slight increase compared to the lowest record of 0.721 in 2023. This is compared to an organization of economic cooperation and development on average of 1.43 in 2023. The “replacement rate” commonly cited for countries in order to prevent a decrease in the population is 2.1.

What a fertility rate of 0.72 means for South Korea is that for 100 Koreans, they would have around 36 children at the current levels, by shrinking the labor market through generations. This would reduce productivity and slow growth, according to experts.

If technological innovation does not compensate for this decrease, Korea will see a “sustained economic slowdown”, told CNBC, director of the Population Institute of the Korean Peninsula, in CNBC.

And it’s not for lack of trying. The country has deployed a package after a set of support measures for newlyweds to have children, including babies and cash rewards. Seoul has spent more than $ 270 billion in the past 16 years on incentives to promote childbirth, according to an article in 2024 of the Journal of Medical Ethics.

In 2023, Seoul even resolved an idea of ​​exempting men from his compulsory military service if they had three or more children before the age of 30.

But such efforts had little impact in a country hailed like the “miracle on the Han river” for its rapid post-war increase. “I do not think there is a means that demographic policy can effectively increase fertility levels in South Korea in a significant way,” Nicholas Eberstadt, political economist of the American Enterprise Institute, told CNBC Nicholas Eberstadt.

While the total fertility rate of South Korea had increased slightly in 2024, “we should not burst the champagne caps,” said Eberstadt, because it is still well below the replacement rate of 2.1. He noted that the size of the desired family in South Korea is still below replacement rate 2.1, which means that if the TFR could climb higher, it will not reach the figure 2.1.

A workforce will also shrink the pension system. In March, South Korea adopted its first pension fund reform in 18 years, extending the depletion of the 15 -year -old state pension fund to 2071.

Among the four main retirement systems in South Korea – military employees, private schools, civil servants and national pensions – the military pension and the pension of civil servants have already been exhausted, said Lee.

Current reforms will see a structure where the young generations pay higher bonuses while receiving lower advantages, which will inevitably lead to criticism for the transfer of the burden to future generations, she added.

A smaller draft pool also has defense implications. Active troops in South Korea fell by 20% to around 450,000, compared to 690,000 in 2019. The South Korean armed forces are increased by 28,500 American troops, and Seoul has a mutual defense treaty with Washington.

South Korea is still officially at war with North Korea, while the Korean War in 1953 ended with a ceasefire, not a peace treaty. North Korea has one of the largest permanent military forces in the world, with around 1.23 million staff.

Despite the dark perspectives of the fourth economy of Asia, some analysts warn against despair.

Lee, who was also the former director general of the National Statistics Agency, said that savings can find ways to adapt.

“When an economy is confronted with recession, it generally responds to various efforts to improve productivity through technological innovation, immigration policies and other measures to avoid a new drop,” she said.

EBERSTADT from AEI also noted that South Korea can maintain and even increase its prosperity despite aging and narrowing. He underlined the 1970s, when fears of shortage of resources increased as the world population has increased and doubts arose on how to feed it.

In 1968, the book The Population Bomb, co-written by the former professor of the University of Stanford, Paul Ehrlich and researcher Anne Ehrlich, predicted world famine and an increase in the mortality rate as the population increased.

However, 50 years later, the world is “richer, better educated, better nourished, better housed, more prosperous, much less absolute, than when the world was smaller,” said Eberstadt.

Lee de KPPIF has said that, taking into account the rapid changes in the Korean government and the development of public awareness in recent years, she is convinced that revolutionary solutions will emerge.

Very few people would have bet that South Korea could accomplish what it has today when the Korean War stopped in 1953, Eberstadt said.

“Human beings are a unique adaptable,” he added. “This is a very different challenge, but I do not think that the file of the immediate past suggests that it is intelligent money to bet against the South Korean population.”