South Korea’s political landscape has plunged into one of its worst crises in years following the sitting president’s sudden declaration of martial law and attempt to incapacitate the National Assembly. His efforts have all failed, resulting in his impeachment by the parliament and likely removal from power before the natural end of his term.

The severe political deadlock has pushed the country’s economy, already under pressure from various domestic and external challenges, deeper into a tailspin. Economic players ― ranging from the government and corporations to households and investors ― find themselves with little choice but to stand still.

This politics-induced economic crisis is set to persist for several months, regardless of whether the Constitutional Court upholds or rejects parliament’s impeachment motion against the president within 180 days. This crisis comes at a particularly bad time, as the external conditions facing South Korea’s trade-reliant economy are becoming increasingly unfavorable.

In the United States, the incoming Donald Trump administration is widely expected to implement policies that could make the world’s largest economy more isolated from the international community and, at least temporarily, pull it farther ahead of other economies.

Meanwhile, China ― South Korea’s closest trade and business partner ― is facing increasingly restrictive trade policies from the incoming US administration, even as it continues to struggle with its long-standing, homegrown economic challenges, such as falling productivity and increased debt.

Reflecting these worsening conditions, the governor of the Bank of Korea warned last week that this year’s economic growth would likely fall short of its revised projection of 2.2 percent, which was adjusted down from an earlier forecast of 2.4 percent just weeks ago.

Gov. Rhee Chang-yong also cautioned during his parliamentary testimony that downside risks threaten the latest growth projection for 2025, set at 1.9 percent. He urged the government and parliament to consider drafting a supplementary budget bill for next year to support the economy and pledged to adjust the timing of the next interest rate cut accordingly.

It is encouraging that South Korean economic policymakers are calling for and committing to all-out efforts to minimize the adverse effects of the political deadlock and deteriorating external conditions before Asia’s fourth-largest economy risks slipping into an unrecoverable abyss.

However, a report by the Bank of Korea, also released last week, sounded an even graver alarm by highlighting that it is no longer time to focus solely on short-term growth. Titled “Our Economy’s Potential Growth Rate and Future Projection,” the report warned that South Korea’s potential growth rate is falling rapidly and is projected to drop below 1 percent within the next two decades.

The potential growth rate of an economy refers to the speed at which a country's economy can grow over time while using its resources ― such as workers, technology and capital ― efficiently and sustainably. It shows how much the economy could expand in a sustainable manner without causing problems like high inflation.

South Korea’s potential growth rate was estimated as high as around 5 percent in the early 2000s, but has since dropped to just above 3 percent a decade later. It is now projected to fall further to around 2 percent by the middle of the current decade.

It is widely understood that an economy’s growth rate tends to decline as it matures. Moreover, South Korea’s economically active population ― those aged 15 to 64 ― has been shrinking since the late 2010s, which means economic output will inevitably expand more slowly than before.

Nevertheless, the report emphasized that a declining potential growth rate is not an unavoidable fate for South Korea. The country can delay or even prevent the decline if it takes due measures to fix structural shortcomings before it becomes too late.

For example, while countries like Japan have suffered from a sustained decline in potential growth due to economic maturity and demographic shifts, others like the United Kingdom and Germany have made early progress in sustaining growth by addressing structural problems and fostering innovation.

The Bank of Korea’s report identifies inefficiencies in the allocation of labor and resources, an underdeveloped environment for corporate investment, and a lack of support for innovative entrepreneurship as the most urgent issues to address if South Korea wants to resist this downward trend and pursue sustained growth.

None of these challenges may not sound new or surprising to those readers who have some knowledge about the South Korean economy, as many experts and commentators have long called for action to resolve them.

Yet it is more troubling than reassuring that these issues remain unresolved despite being recognized for so long. The longer South Korea delays addressing these problems, the slimmer its chances of achieving sustained growth.

Regardless of whether the Constitutional Court’s ruling results in a change of government by the middle of 2025, now is the time for South Koreans to focus on tackling these structural challenges. Even if such efforts are set to take years, they are essential to securing the country’s long-term economic stability and more valuable than merely discussing ways to chase short-term growth targets.

Yoo Choon-sik

Yoo Choon-sik worked for nearly 30 years at Reuters, including as the chief Korea economics correspondent, and briefly worked as a business strategy consultant. The views expressed here are the writer’s own. -- Ed.