Miracle under threat: South Korea’s birth rate collapse could undo decades of growth

South Korea is staring down a demographic freight train. The country, known as one of the “Four Asian Tigers” for its meteoric economic rise from postwar poverty, is confronting a demographic cliff that could stall growth within two decades, studies warn.

The Bank of Korea in 2024 projected that the nation’s rock-bottom birth rate will be one of the factors that will push it into a prolonged downturn by the 2040s.

A separate study by the Korea Development Institute in May said demographic shifts will keep dragging on potential growth, which could fall to near zero by the 2040s. In its projections, South Korea’s economy could contract by 2047 in a neutral scenario — or as early as 2041 in a pessimistic one.

South Korea’s birth rate currently stands at 0.748 in 2024, a slight rise from the record low of 0.721 in 2023. That compares with an Organization for Economic Cooperation and Development average of 1.43 in 2023. The commonly cited “replacement rate” for countries to prevent a declining population is 2.1.

What a 0.72 fertility rate means for South Korea is that for every 100 Koreans, they would have about 36 children at current levels, shrinking the workforce across generations. That would cut into productivity and slow growth, experts say.

If technological innovation fails to offset this decline, Korea will see a “sustained economic slowdown,” Lee In-sil, Director of the Korea Peninsula Population Institute for Future, told CNBC.

And it’s not for lack of trying. The country has rolled out package after package of support measures for newlyweds to have children, including baby bonuses and cash rewards. Seoul expended over $270 billion over the past 16 years on incentives to promote childbirth, according to a 2024 paper in the Journal of Medical Ethics.

In 2023, Seoul even mooted an idea to exempt men from its mandatory military service if they had three or more children before the age of 30.

But such efforts have made little impact in a country hailed as the “Miracle on the Han River” for its rapid postwar rise. “I don’t think there’s any way that population policy can effectively raise fertility levels in South Korea in any appreciable way,” Nicholas Eberstadt, a political economist at the American Enterprise Institute, told CNBC.

While South Korea’s total fertility rate had marginally increased in 2024, “we should not be popping the champagne corks,” Eberstadt said, as it is still far below the 2.1 replacement rate. He noted that the desired family size in South Korea is still below the 2.1 replacement rate, which means that while the TFR might climb higher, it will not reach the 2.1 figure.

A shrinking workforce will also squeeze the pension system. In March, South Korea passed its first pension fund reform in 18 years, extending the depletion of the state pension fund by 15 years to 2071.

Among South Korea’s four major pension systems — military, private school employees, civil servants, and national pensions — the military pension and civil servants’ pension have already been depleted, Lee said.

Current reforms will see a structure where younger generations pay higher premiums while receiving lower benefits, which will inevitably lead to criticism for transferring the burden to future generations, she added.

A smaller draft pool also has defense implications. South Korea’s active troops have fallen 20% to about 450,000, down from 690,000 in 2019. South Korean armed forces are augmented by 28,500 U.S. troops, and Seoul has a mutual defense treaty with Washington.

South Korea is still formally at war with North Korea, as the Korean War in 1953 ended with a ceasefire, not a peace treaty. North Korea boasts one of the largest standing military forces in the world, with around 1.23 million personnel.

Despite the bleak outlook for Asia’s fourth-largest economy, some analysts caution against despair.

Lee, who was also the former director general of the national statistics agency, said economies can find ways to adapt.

“When an economy faces recession, it typically responds with various efforts to enhance productivity through technological innovation, immigration policies, and other measures to prevent further decline,” she said.

AEI’s Eberstadt also noted that South Korea can maintain and even increase its prosperity despite aging and shrinking. He pointed to the 1970s, when fears of resource scarcity grew as the world’s population surged and doubts arose about how to feed it.

In 1968, the book The Population Bomb, co-authored by former Stanford University professor Paul Ehrlich and researcher Anne Ehrlich, predicted global famine and a rising death rate as the population grew.

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

KPPIF’s Lee said that, considering the Korean government’s rapid policy changes and evolving public awareness in recent years, she is confident that breakthrough solutions will emerge.

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

“Human beings are a uniquely adaptable,” he added. “This is a very different sort of challenge, but I don’t think that the record of the immediate past suggests that it’s smart money to bet against South Korean population.”