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The North's gross domestic product contracted 2.3 percent in 2007 from a year earlier due to a fall in agricultural production in the wake of devastating floods and chronic energy shortages, according to South Korea's central bank estimate released on Wednesday.
The North's GDP stood at 20.7 trillion South Korean won (US$20.1 billion) last year, compared with 21.2 trillion won in 2006, and was below where it stood at the end of the 1980s, the Bank of Korea said.
The isolated country's economy swung to negative growth in 2006 for the first time in eight years, shrinking 1.1 percent from a year earlier, largely because of the cost of the nuclear test and subsequent international sanctions.
On the basis of nominal gross national income, the North's economy was just 2.8 percent that of South Korea last year, widening a gap in wealth between the two rivals, the bank said.
The North's per-capita GNI came to 1 million South Korean won ($971), accounting for 5.7 percent that of the South. GNI refers to a nation's GDP plus its trade loss or gain arising from changes in terms of trade.
The bank cited a reduction of agricultural product as the main factor behind the North's negative economic growth last year. "The poor economic performance was mainly caused by a decline in agricultural production due to adverse weather conditions," said Shin Chang-shik, a senior official at the bank's statistics department.
The agricultural, forestry and fisheries sector, which accounts for 21.2 percent of the country's total output, contracted 9.4 percent on-year in 2007, larger than the 2.6 percent fall in 2006. Rice output was down 19 percent on-year and corn production decreased 9.3 percent from a year earlier.
Massive floods swept through the communist nation last summer, destroying more than 11 percent of North Korea's crops. The U.N. Food and Agriculture Organization estimates last year’s grain output in the North at 3 million tons, lower than 4 million tons in 2006 and an averaged 3.7 million tons for the past five years.
Kwon Tae-jin, a senior researcher at the Korea Rural Economic Institute in Seoul, says North Korea needs at least 5.2 million tons of food, which means the country is facing a shortfall of more than 2 million tons over the year.
BOK officials say the North's economic growth this year would heavily depend on weather conditions. "North Korea's farm industry is vulnerable to natural disasters. Bad weather could hamper agricultural production again this year," Shin said.
North Korea has launched a nationwide campaign to revive its economy, saying its security concerns were resolved by the nuclear test in 2006. Its reclusive leader made a series of "onsite" inspection tours of farms and industrial sites to call for all-out national efforts to rebuild the devastated economy.
But prospects appear dim as the North has been losing its internal capability to resuscitate its moribund economy, largely due to shortages of energy and raw materials whose international prices have been soaring, Shin said.
"With its manufacturing and mining sectors remaining sluggish, the North has few items to export, which would worsen its cash crunch," he said. The country's manufacturing sector expanded merely 0.8 percent in 2007 from a year earlier, while the mining sector grew 0.4 percent on-year.
With ongoing sanctions for its nuclear test and rising global raw materials prices, the North's foreign trade decreased 1.8 percent on-year to US$2.9 in 2007. The shipments dipped 3 percent to US$920 million last year, while imports decreased 1.3 percent to US$2 billion, the central bank said.
But inter-Korean trade jumped 33.2 percent from a year earlier last year to US$1.8 billion on the back of brisk growth in the joint industrial complex.
Cross-border trade, however, is likely to drop this year as the South's newly inaugurated conservative government has vowed to reduce economic cooperation with the North unless it drops its nuclear weapons.
The North's service sector, which accounts for 34.1 percent of the country's total output, gained 1.7 percent on-year as more foreign tourists, mainly South Koreans, traveled to the North last year. Some 377,000 foreign tourists visited the North last year, up from 266,000 in 2006.
But the number may drop with cross-border tensions mounting this year. The North has cut off government dialogue with the South in response to Seoul’s tough stance.
