SEOUL (Reuters) – The North Korean economy shrank most in 2017, according to estimates by the South Korean Central Bank on Friday, as international sanctions and drought severely impacted growth. The signs of deteriorating living conditions began to deteriorate.
The gross domestic product (GDP) in North Korea fell last year by 3.5 percent compared to the previous year. This is the biggest drop since a 6.5% decline in 1997, when the isolated nation was hit by a devastating famine.
North Korea publishes no economic data and comprehensive public figures on social conditions do not exist.
However, analysts predict that by 2018 further sanctions could cause the economic downturn in 201
"The sanctions were stronger in 2017 than in 2016," said Shin Seung-cheol, head of the BOK's coordination team.
"Foreign trade volume has dropped significantly as a result of the ban on exports of coal, steel, fisheries and textiles, which is difficult to pin down, but (export bans) has plunged industrial production," Shin said.
Both Seoul and Washington argue that stricter international sanctions on North Korea's nuclear weapons and missile program have contributed significantly to Kim Jong Un's decision to ban arms testing and negotiate with international leaders.
North Korea has described the sanctions as "vicious", but rejects the proposals that the pressure has led them to diplomatic talks.
The situation also worsened last year with international experts fearing that North Korea would suffer the worst drought in 16 years, although late summer rains have helped prevent acute food shortages.
North Korean leader Kim Jong Un promised in April to deviate the country's strategic direction from the development of its nuclear arsenal, which will begin its economy, but analysts say this will be difficult while sanctions remain.
"As long as the export of minerals is part of the sanctions, Pyongyang will have no choice but to continue its ongoing negotiations with the US," said Kim Byeong-yeon, an economics professor at Seoul National University, on the North Korean economy specializes.
U.S. President Donald Trump has said that sanctions will not be lifted until Kim gives up his nuclear and missile arsenal.
INDUSTRY TAKES A HIT
North Korea's coal-intensive industries and manufacturing sectors have suffered as the UN Security Council tightened sanctions in response to Pyongyang's years of nuclear testing.
Industrial production, which accounts for about one-third of total land production, fell 8.5 percent. This was the steepest decline since 1997, when factory production collapsed due to restrictions on oil and energy resources entering the country. Production in agriculture and construction declined by 1.3 percent and 4.4 percent, respectively.
China, its largest trading partner, suspended coal sales last year, cutting Nordkoreo's main exports, while its blocked fuel sales to one country triggered a rise in gasoline and diesel prices, Reuters reviewed earlier.
Since then, fuel prices have stabilized and even fallen in recent weeks, according to a report released last week on the North Korean Economy Watch website.
"My best guess is that it's a combination of increased smuggling, perhaps backed by China's diminishing vigilance in enforcing sanctions and restricting illegal trade across the border," analyst Benjamin Katzenff Silberstein wrote in the report.
North Korea's black market, or Jangmadang, has grown to about 60 percent of the economy, according to the Institute for Korean Integration of Society.
"Shrinking trade first hits Kim's regime and senior officials, and then later the unofficial markets," said Kim of Seoul National University, noting that pressure would also impact household income and household consumption.
China's total trade with North Korea fell 59.2 percent year-on-year in the first half of 2018, Chinese customs data showed last week.
The BOK uses figures prepared by the government and spy agencies to make their economic estimates. The bank's survey includes monitoring the size of rice paddy crops in border areas, traffic monitoring and interviews with defectors.
Prices of staple foods such as rice and corn have remained stable under changing sanctions, and there is evidence that an increasing number of North Koreans have access to electronic devices that are often powered by solar cells the DailyNK website.
North Korean deserters in the south, however, say they hear reports of heightened suffering.
"Economic status in the Hamgyong region was very poor, according to my sources in North Korea," said Kim Seung-cheol, a defector in charge of the NK Reform radio station in Seoul, referring to an area near the border with China.
"In South Hamgyong, some people have died of hunger and as trade with China has fallen sharply, foreign traders in the border region are living in poverty."
The United Nations Humanitarian Aid visited the country last week and said there was "clear evidence of humanitarian needs".
Other UN officials warn that relief organizations have difficulty gaining access to international banking channels and transporting goods to North Korea, while rising fuel prices are hampering the provision of aid.
North Korea's gross national income per capita stands at 1.46 million won ($ 1,283.52), making it 4.4 percent of South Korea's size, according to the BOK.
Total exports from North Korea fell by 37.2 percent in 2017. This is the biggest drop since a decline of 38.5 percent in 1998, BOK said on Friday, citing data from the Korea Trade Investment Promotion Agency.
($ 1 = 1,137,5000 won)
Additional coverage by Cynthia Kim,; Edited by Sam Holmes