KDI Chief: 30 Years of Stimulus Created 'Fake Growth,' Only Inflating Home Prices

Aggregate demand stimulus policies repeated over the past 30 years to revive South Korea's economy failed to prevent long-term growth rate decline and instead created "fake growth" that only inflated household debt and apartment prices, according to a new analysis.

Kim Se-jik, the newly appointed president of the Korea Development Institute (KDI), said at a press conference on the 10th, "Korea's long-term growth rate has steadily declined over the past 30 years and already entered the 0% range in 2025." He emphasized, "What we need now is real growth centered on creative ideas and technology."

Kim diagnosed that Korea's long-term growth trajectory is rapidly decelerating. "Korea's long-term growth rate has been falling by 1 percentage point every five years," he explained. "The long-term growth rate in 2025 is 0.9%, already in the 0% range, and if this trend continues, it could fall to -0.1% by 2030." He projected a possible "Peak Korea" scenario where Korea's real gross domestic product (GDP) peaks in 2029 before entering a decline.

Kim assessed that successive governments' repeated aggregate demand stimulus policies in response to slowing growth had limited effect. "Despite continued demand-side policies such as construction stimulus, low interest rates, and eased lending regulations, the long-term growth rate decline was not prevented," he noted. "Instead, these became 'fake growth' policies that produced side effects including increased household debt and soaring apartment prices." Specifically, Kim pointed out that apartment prices that were 400 million won in 2014 surged to 1 billion won by 2021, while household debt reached 135% of GDP—the highest in the world.

Kim stressed that Korea's economy must shift from stimulus-centered policies to an innovation-based growth strategy. "To raise the long-term growth rate, creative ideas and technological innovation must become the core drivers," he said, proposing a nationwide idea registration system, intellectual property protection for ideas, and tax and subsidy incentives.

When asked about his position on the government's expansionary fiscal stance and expected supplementary budget size, Kim replied, "We need to be more cautious with aggregate demand stimulus through finance and interest rates, and fiscal policy solely for economic stimulus should also be approached with maximum caution. The supplementary budget size still requires further discussion."

However, he clarified he was not rejecting expansionary fiscal policy itself. "Fiscal policy may be necessary for economic growth," Kim said. "If difficulties increase for vulnerable groups, self-employed individuals, and small business owners during the long-term growth rate recovery process, spending budgets as a form of pain relief would be appropriate."

Kim also took a cautious stance on the impact of heightened Middle East tensions on Korea's economic growth rate. "It is still difficult for anyone to gauge how much external uncertainty will affect this year's annual growth rate," he said. "It will depend on how far the war spreads and how long it lasts." KDI is currently analyzing the impact of oil price changes on the macroeconomy.