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But the Bank of Korea report showed that the North's command economy is likely to suffer contraction again this year as the impoverished nation has put more of its scarce resources into nuclear and missile tests, which has triggered wide-ranging international economic sanctions.
The North's gross domestic product grew 3.7 percent last year after shrinking 2.3 percent in 2007 and contracting 1.1 percent in 2006, according to the bank report.
"The positive economic growth in 2008 was mainly attributable to one-off factors, such as increased agricultural production amid favorable weather conditions and assistance in the form of raw materials and heavy crude oil under a deal reached at the six-nation nuclear talks," it said.
The North received massive economic aid under the landmark “February 13 Agreement” in 2007, in which Pyongyang promised to begin disabling its existing nuclear facilities in exchange for 1 million tons of heavy fuel oil or equivalent energy aid.
The North's GDP stood at 21.5 trillion South Korean won (US$16.7 billion) in 2008, compared with 20.7 trillion won in 2007 and 21.2 trillion won in 2006, but was below where it stood at the end of the 1980s, the report said.
On the basis of nominal gross national income, the North's economy was just 2.7 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 1.17 million South Korean won ($910), accounting for 5.5 percent that of South Korea. GNI refers to a nation's GDP plus its trade loss or gain arising from changes in terms of trade.
The bank cited an increase of agricultural product as the main factor behind the North's economic growth last year. There were no major natural disasters last year, such as floods and drought that have often wiped out crops and farmland in the past.
The agricultural, forestry, and fisheries sector, which accounts for 21.6 percent of the country's total output, gained 8.2 percent last year, compared with a 9.4 percent fall in 2007 and a 2.6 percent drop in 2006.
According to Seoul's Unification Ministry, North Korea produced 4.31 million tons of grain last year, up 7.5 percent from 2007 when it produced 4.01 million metric tons, thanks to improved weather conditions. But it still fell short of the needed 5.48 million tons to feed its 2.3 million people.
Kwon Tae-jin, a senior researcher at the Korea Rural Economic Institute in Seoul, says the North's grain output has been heavily dependent on weather conditions. "North Korea's farm industry is vulnerable to natural disasters," he said.
The North's mining industry, which accounts for 34.6 percent of the country's total output, expanded 2.5 percent, while its construction industry grew 1.1 percent. "Overall production in North Korea's industries increased in 2008, bolstered by more output in electricity, coal and crops," the BOK report said.
With brisk cross-border trade with its communist patron, China, the North's foreign trade jumped 29.7 percent to hit a record US$3.8 billion last year. Its exports rose 23 percent to $1.13 billion, with imports climbing 32.7 percent to $2.69 billion. The country still posted a trade deficit of $1.56 billion for the year.
The report showed that China's influence on North Korea's moribund economy is rising quickly. The North exported $750 million worth of goods to China and imported $2.03 billion last year. "North Korea's trade with China hit a record last year and keeps growing," it said.
The BOK said the factors attributable to the North's positive growth last year were temporary, hinting that the command economy could suffer contraction this year. "It is difficult to say that North Korea's momentum in economic growth has improved internally," it said.
This year, the North poured national resources into boosting its military capabilities. It conducted a nuclear weapons test and launched a set of missiles, including a long-range ballistic missile that flew about 3,200 kilometers, crossing over Japan before crashing into the Pacific Ocean.
The defiant country is also believed to have prepared to launch an intercontinental ballistic missile, or ICBM, with a range of up to 6,500 kilometers, which could hit the west coast of the United States.
In response, the U.N. Security Council adopted Resolution 1874, which calls for tougher cargo inspections, a tighter arms embargo, and stronger financial sanctions aimed at choking off the North's cash flow.
The tough sanctions are most likely to force outside donors to reduce their aid to the North and China to cut trade with Pyongyang, which is certain to damage the North's just-recovering economy.
In 2006, the North's economy swung to negative growth for the first time in eight years, largely because of the cost of its first nuclear test and subsequent international sanctions. "In 2006, North Korea suffered a blow as its international relations deteriorated due to its nuclear problem as well as shortages in energy supply," the BOK said.
In the face of the international sanctions, North Korea has vowed to make a "do-or-die" campaign to revive its economy. But it has no options other than resorting to its human resources. It has recently launched another “work harder” campaign, mobilizing its famine-hit citizens to shore up its sagging economy.
Under the "150-day battle" campaign, North Korean residents are urged to intensify their efforts to restore agricultural and industrial production by Oct. 10, when the country celebrates the founding anniversary of the ruling Workers' Party.
