Seoul: The South Korean economy's potential growth rate may fall to around 0 percent in the 2040s due largely to demographic changes unless necessary reforms are taken in a timely manner, the Korea Development Institute (KDI) said Thursday.

According to Qatar News Agency, the Korea Development Institute (KDI) said that South Korea's potential growth rate for this year is estimated to be in the upper 1 percent range, with a gradual slowdown expected to bring growth down to nearly zero in the 2040s. The KDI also warned the economy may begin to contract in the late 2040s, or as soon as the early 2040s, if structural reforms are delayed.

"The expected decline in potential growth is attributable to demographic changes, with the working-age population expected to shrink rapidly," the report said, explaining that labor input is projected to start making a negative contribution to growth around 2030.

To slow the economic downturn, South Korea should focus on structural reforms of the economy, creating a favorable environment for innovative companies and improving the efficiency of the labor market, the KDI said. Efforts to promote economic activities of females and the elderly are needed, the KDI added, also calling for measures to attract more foreign workers.

The KDI also called for efforts to prevent the weakening of fiscal soundness amid the fast aging of the population, noting that the country's fiscal deficit had stood at 1.4 percent of its gross domestic product (GDP) between 2011 and 2019 on average but has increased to around 4 percent after the COVID-19 pandemic.