■ Demographic changes will continue to depress Korea’s potential growth rate, projected to be near 0% by the 2040s.

- With 2025’s potential growth rate in the upper 1% range, the baseline scenario projects negative growth by the late 2040s, while the pessimistic scenario, with delayed structural reforms, anticipates its onset by the early 2040s.

- Accordingly, policy efforts should prioritize TFP enhancement through structural economic reforms.

- Simultaneously, policies should counter demographic-driven labor force decline by promoting workfamily balance, elderly labor participation, and labor market openness.

■ Slowing growth may push down the neutral real interest rate, increasing the risk of hitting the zero lower bound. This calls for reviewing the monetary policy framework to stabilize inflation expectations.

- If the neutral real interest rate declines alongside low inflation expectations, the nominal interest rate (= real rate + expected inflation rate) may remain subdued, constraining rate cuts. A balanced approach is therefore needed to address both upside and downside inflation risks.

- High interest rates, maintained for financial stability as a newly adopted monetary policy objective, may lead to disinflationary effects. Therefore, monetary policy frameworks should balance financial stability and inflation expectations through careful evaluation.

With slowing potential growth expected to strain government fiscal soundness, caution should be exercised to prevent repeated stimulus measures from creating structural budget deficits.

- A shrinking tax base from slower growth will strain public finances, requiring reforms to fiscal systems designed with the assumptions of high growth and labor participation

- To boost economic dynamism, policy efforts should prioritize correcting market failures and reforming distortionary systems over fiscal spending.

- Misreading potential growth decline for a cyclical downturn and using repeated stimulus measures could undermine fiscal soundness and macroeconomic stability.