Once on the threshold of entering the ranks of the world's top-ten economies, Korea's economy plummeted to 15th place in the rankings for 2008.

According to the World Bank's rankings of nominal gross domestic product (the value of all goods and services produced in a country expressed in current prices) released on Monday, Korea stands at 15th place, after Australia. In 2003 Korea ranked 11th. Experts say the biggest reason behind the fall of four notches in just five years is lost growth momentum.

◆ Weakened Growth Momentum

Korea's annual economic growth rate hovered between four to five percent over the past five years, while the economies of newly-emerging countries, such as China, Brazil and India, expanded close to 10 percent annually over the same period. As a result, Korea ended up lagging behind. India climbed above Korea in the economic rankings in 2004, while Brazil scored an upset in 2005, followed by Russia in 2006. As corporate investments dwindled during the Roh Moo-hyun administration (2003-2007), Korea's average annual growth rate slowed to 4.4 percent, below the global average of 4.9 percent for the period, according to International Monetary Fund data. While the global economy, including the economies of the U.S. and other advanced countries, was booming, Korea fell under the threat of low growth.

"Korea is losing its growth momentum as investment has dropped markedly since 2000," said Kwon Soon-woo, an economist at the Samsung Economic Research Institute (SERI). "With investment declining, Korea's potential growth rate (the expansion that can be achieved if a country's financial resources and labor force are put to full use) and real growth rates have been lackluster," he added. Korea's potential economic growth rate was 4.5 percent prior to the global financial crisis. But as investments have fallen drastically both last year and this year, it is estimated to have decreased further.

◆ Effects of Consumer Prices and Foreign Exchange Rate

The effects of rising consumer prices are directly reflected in nominal GDP. The more consumer prices rise, the larger nominal GDP becomes. "Until now, Korea maintained stable economic growth and consumer price levels, while Brazil, India and Russia's nominal GDP are getting bigger due to high consumer price increases on top of high economic growth," a Bank of Korea official said. Resource-rich Australia became the world's 14th-largest economy last year thanks to growing exports and GDP, as raw materials prices have been climbing since 2006.

In contrast, Korea's consumer price increase was offset by the weak won. Nominal GDP is calculated in won and then converted into U.S. dollars. As a result, nominal GDP shrinks if a country's currency is weaker than the dollar, even if consumer prices in that country rose. The Korean won was worth W955 against the dollar on average in 2006, W929 in 2007, but weakened to W1,103 in 2008.

◆ Need for New Growth Engines

Experts say investment needs to rise in order for Korea to boost its global economic ranking. "Korea remains competitive in exports, but private consumption and investment remain weak. Korea's domestic economic structure needs to be strengthened by reviving private consumption and investment," Kwon at SERI said. Oh Moon-suk, a senior economist at the LG Economic Research Institute, said, "Korea's economy could grow faster in the future, because Korean products have been increasing their share of the global market since the global financial crisis." But Oh advised that Korea needs to tap into new growth engines in order to return to its previous rate of growth, since it would be difficult for the government to shift back to a strong won policy as officials seek to maintain the country's current account surplus.