South Korea could surpass Japan in per capita gross domestic product (GDP) by 2023 in terms of purchasing power, an International Monetary Fund (IMF) study suggested.

Korea’s GDP per capita at purchasing power parity (PPP) rates is expected to rise from $37,542 this year to $41,362 by 2023, moving up two notches to 30th out of 193 countries, according to the IMF World Economic Outlook database.

During the same period, Japan’s GDP per capita is estimated to expand from $39,795 to $41,253. It would maintain its ranking at 31st but fall behind Korea in PPP terms for the first time since the IMF data was available from 1980.

The gap is expected to widen further in 2024, with Korea’s GDP per capita projected at $42,392 versus Japan’s $41,666.

As opposed to nominal GDP, GDP on a PPP basis reflects the differences in costs of living and inflation rates of countries, making it a more accurate indicator of a country’s standard of income.

“PPP negates the difference in various production costs between countries such as labor and electricity costs,” said Kang Sung-jin, an economics professor at Korea University. “Since the cost of production factors between Korea and Japan is not all that different, Korea’s surpassing Japan in PPP by 2023 could be meaningful.”

Japan would still be bigger in terms of nominal per capita GDP. The IMF’s nominal GDP per capita estimates for this year are $31,937 for Korea and $41,021 for Japan. By 2023, this is expected to widen further to $38,612 and $52,140, respectively.

But thanks to its sounder fiscal integrity and debt portfolio, Korea’s sovereign rating is two notches higher than Japan’s. Standard & Poor’s credit rating for Korea is ‘AA’ while that of Japan is ‘A+.’ Ratings from Moody’s hold Korea at Aa2 and Japan at A1. Fitch’s rating for Korea is ‘AA-‘ while that of Japan is ‘A.’

By Moon Jae-yong and Kim Hyo-jin

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