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SEOUL (Reuters) – North Korea's economy contracted at the sharpest rate in two decades in 2017, South Korea's central bank estimated on Friday, as international sanctions and drought hit hard growth, with signs living conditions were beginning to deteriorate.
Gross domestic product (GDP) in North Korea last year shrank 3.5 percent from the previous year, marking the largest decline since a 6.5 percent drop in 1997 when the nation was hit by a devastating famine, the Bank of Korea said.
North Korea does not publish economic data.
However, analysts believe that sanctions are more likely to make the economic deterioration in 2018 worse than 2017, which could add to the political environment.
"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 coal, steel, fisheries and textile products. It's difficult to get exact numbers on those goals (export bans) crashed industrial production, "Shin said.
Both Seoul and Washington argue that stricter international sanctions imposed on North Korea's nuclear weapon and ballistic missile program have been instrumental in leading Kim Jong's decision to impose a ban on weapons testing and to negotiate with international leaders.
North Korea has called the sanctions "vicious" but rejects suggestions that the pressure of the diplomatic talks.
The situation also came to a head last year with international experts fearing North Korea was facing the worst drought in 16 years, though late summer rains helped prevent acute food shortages.
North Korean leader Kim Jong Un in the political arsenal of the country's strategic focus from the development of its nuclear arsenal, but analysts say that it will be difficult while sanctions remain in place.
"As long as exports of minerals are part of the sanctions, by far the most profitable item of its exports, Pyongyang will have no choice but to continue its negotiations with the US," said Kim Byeong-yeon, an Economics professor at the Seoul National University who specializes in the North Korean economy.
U.S. President Donald Trump has said that sanctions will not be lifted until Kim moves to give up his nuclear and missile arsenal.
INDUSTRY TAKES IN HIT
North Korea's coal-intensive industries and manufacturing sectors have been breached by Pyongyang.
Industrial production, which accounts for a third of the nation's total output, fell 8.5 percent. That marked the steepest decline since 1997 as factory production collapsed on the restrictions of flows of oil and other energy resources into the country. Output from agriculture, construction industries fell by 1.3 percent and 4.4 percent, respectively.
China, its biggest trading partner, North Korea's main export source, while its suspended fuel sales in a country sparked a surge in gasoline and diesel prices, data reviewed by Reuters.
Since then, however, according to the North Korean Economy Watch website.
"My best guess is that it's a combination of increased smuggling, perhaps aided by China's declining vigilance in enforcing sanctions and restrictions against illiteracy," analyst Benjamin Katzeff Silberstein wrote in the report.
North Korea's black market, or Jangmadang, has grown to account for 60 percent of the economy, according to the Institute for Korean Integration of Society.
"Shrinking trade first hits the Kim and Seoul," said Kim at Seoul National University.
China's total trade with North Korea dropped 59.2 percent in the first half of 2018 from China ago showed last week.
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 paddies, surveillance surveillance, and interviews with defectors.
HUMAN TOLL
Prices for food staples like rice and corn are steadily rising, and there are signs of growing in size. by the DailyNK website.
North Korean defectors in the South, however, say they hear reports of increased suffering.
"The economic status in North Korea," said Kim Seung-cheol, a defector who heads the NK Reform Radio station in Seoul, referring to the area near the border with China.
"In South Hamgyong, some people died of hunger. Since the trade with China fell significantly, foreign traders in the border area are suffering from poverty. "
The United Nations' top aid official visited the country last week and said there was" clear evidence of humanitarian need. "
UN officials in the North Korea, while rising fuel prices hinder aid delivery.
North Korea's Gross National Income per capita stands at 1.46 million won ($ 1,283.52), making it about 4.4 percent of South Korea's size, 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, quoting data from the Korea Trade-Investment Promotion Agency.
($ 1 = 1,137,5000 Won)
Additional reporting by Cynthia Kim ,; Editing by Sam Holmes
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