North Korea economy declines at sharpest rate in 20 years in 2017

By Cynthia Kim and Hayoung Choi

SEOUL (Reuters) - North Korea's economy contracted at the sharpest rate in two decades in 2017, South Korea's central bank estimated on Friday, in a clear sign international sanctions imposed to stop Pyongyang's nuclear and missile programmes have hit growth hard.

Gross domestic product (GDP) in North Korea last year contracted 3.5 percent from the previous year, marking the biggest contraction since a 6.5 percent drop in 1997 when the isolated nation was going through a devastating famine, the Bank of Korea said.

Industrial production, which accounts for about a third of the nation's total output, dropped by 8.5 percent and also marked the steepest decline since 1997 as factory production collapsed on restrictions of flows of oil and other energy resources into the country. Output from agriculture, construction industries also fell by 1.3 percent and 4.4 percent, respectively.

"The sanctions were stronger in 2017 than they were in 2016," Shin Seung-cheol, head of the BOK's National Accounts Coordination Team said.

"External trade volume fell significantly with the exports ban on coal, steel, fisheries and textile products. It's difficult to put exact numbers on those but it (export bans) crashed industrial production," Shin said.

The steep economic downturn comes as analysts highlight the need for the isolated country to shift towards economic development, moves that were announced by leader Kim Jong Un in April.

Kim vowed to switch the focus from the development of North Korea's nuclear arsenal to emulating China's "socialist economic construction" before he held an unprecedented summit with President Donald Trump in Singapore in June.

North Korea's coal-intensive industries and manufacturing sectors have suffered as the UN Security Council ratcheted up the sanctions in response to years of nuclear tests by Pyongyang.

China, its biggest trading partner, enforced sanctions strictly in the second half of 2017, hurting North Korea's manufacturing sector.

The BOK uses figures compiled by the government and spy agencies to make its economic estimates. The bank's survey includes monitoring of the size of rice paddy crops in border areas, traffic surveillance, and interviews with defectors. North Korea does not publish economic data.

North Korea's Gross National Income per capita stands at 1.46 million won ($1,283.52), making it about 4.4 percent the size of South Korea's, the BOK said.

Overall exports from North Korea dropped 37.2 percent in 2017, marking the biggest fall since a 38.5 percent decline in 1998, the BOK said on Friday, citing data from the Korea Trade-Investment Promotion Agency.

($1 = 1,137.5000 won)

(Additional reporting by Cynthia Kim,; Editing by Sam Holmes)