MAIN ECONOMIC INDICATORS
|2018||2019||2020 (e)||2021 (f)|
|GDP growth (%)*||-4.1||0.4||-5.0||-2.0|
|Inflation (yearly average, %)||0.0||0.0||0.0||0.0|
|Budget balance (% GDP)||0.0||0.0||0.0||0.0|
|Current account balance (% GDP)||0.0||0.0||0.0||0.0|
|Public debt (% GDP)||0.0||0.0||0.0||0.0|
(e): Estimate (f): Forecast *Approximate data based on available sources
- Although currently deadlocked, bilateral talks with the United States and South Korea increase the likelihood of economic integration
- Youthful population, low labour costs
- Borders with China and Russia
- Extensive mining resources remain largely untapped
- Economically and politically isolated
- Chronic food and electricity shortages
- Military spending dwarfs investment in productive sectors
- Extreme poverty (half of the population)
- Severe lack of infrastructure
The pandemic plunges the country into a new recession
The government, which closed borders at the beginning of January 2020, officially recognised the first suspected case of COVID-19 in July 2020 in Kaesong, a town on the border with South Korea, and immediately put the town under a two-week lockdown. While no further official information on the health situation was provided in the following months, the border closures and the introduction of major trade restrictions severely affected the North Korean economy, which fell back into recession in 2020, after GDP more or less stagnated in 2019. Exports to China plummeted by 72% in the first half of 2020, while imports fell by 67% over the same period. During the pandemic, North Korea has mainly imported necessities, such as oil, sugar, flour and medicines. Trade trends with China are particularly instructive as China is virtually the country's sole supplier, accounting for 95% of imports in 2019, and its primary market, taking 48% of exports, ahead of Nicaragua (23%) and Suriname (4%). Although North Korean exports rebounded by 30% in 2019, they were still nearly five times lower than their 2017 level, before the vote by the UN Security Council to impose sanctions to substantially reduce trade with the country. As the sanctions affect all of North Korea's main export products – textiles (27% of the total in 2017), coal (22%) and seafood (8%) – the country has significantly increased its exports of watches and wigs, but for now the amounts involved are insignificant (USD 50 million for each product in 2019, compared to USD 450 million in coal exports in 2017). Moreover, the border closures deprive the tourism sector of income, which was still very low due to isolationism, but was tending to grow thanks to the increasing number of Chinese tourists in recent years, particularly in Pyongyang. As the country is expected to remain on high alert as long as the pandemic continues to spread around the world, trade and tourism will continue to be severely impacted in 2021. Given the absence of foreign currency inflows, the won, which is mainly traded on the black market, will remain under downward pressure. Domestically, the expansion of the economy will continue to be hampered by major structural weaknesses: frequent shortages of oil and consumer goods, due to sanctions, will be exacerbated by the border closures. The North Korean economy is characterised by central planning and state ownership of capital and resources. Although gradually declining, the agricultural sector still accounts for more than 20% of GDP and remains largely state-owned and unproductive. Mining has also seen its share decline but still accounts for 10% of GDP. The explanation for the shrinking shares of these two sectors lies with the rise of services (34% of GDP in 2019, five points up on 2012), although the sector’s strength is due to services linked to state activity, which represent 74% of the sector's added value. Since coming to power, Kim Jong-Un has established his byungjin policy, which aims to develop simultaneously the nuclear arsenal and the economy, thus paving the way for progressive liberalisation along the lines of the Doi Moi policy pursued by Vietnam in the 1980s. As a result, the state has grown more tolerant of markets (jangmadangs), which have increased significantly in size and number.
Diplomatic talks at a standstill
North Korea's Supreme Leader Kim Jong-Un succeeded his father in 2012. He controls the three main administrative organs of the country: the Workers' Party of Korea (WPK), the Korean People's Army (KPA) and the State Commission. The people of North Korea are under total control.
Since 2017, North Korea has been under UN sanctions, with the international community pushing the country to denuclearise. Although in March 2018, then U.S. President Donald Trump relaunched diplomacy and met the North Korean leader three times, but talks remained at a standstill at the end of 2020. The election in November 2020 of Joe Biden, who has taken a hard-line stance on Pyongyang, in contrast to the relatively cordial relationship maintained by his predecessor, could lead to renewed tensions and show-of-force actions. At the end of 2020, the country continued to reject the "final and fully verified" denuclearisation process called for by Washington unless international sanctions are eased. At the same time, while relations with South Korea improved slightly following three meetings between Kim Jong-Un and South Korean President Moon Jae-in, who agreed under the Panmunjom Declaration in April 2018 to work together to end the Korean War and promote the denuclearisation of the Korean Peninsula, they have since become strained once again. In June 2020, North Korea destroyed the symbolic inter-Korean liaison office opened in Kaesong in 2018, and in September 2020 shot a South Korean official who had illegally entered North Korean waters. However, Kim Jong-Un's official apology to President Moon Jae-in, which was reported by the South Korean government, points to a desire to make peace. A rapprochement would stimulate the manufacturing sector (South Korean FDI) and construction, via joint infrastructure projects (rail and road).
Last updated: February 2021