North Korea’s negative growth in 2017: things look bad, unsurprisingly, but take the numbers with a grain of salt

By Benjamin Katzeff Silberstein

Bank of Korea (BOK) has put out their yearly estimate of North Korea’s GDP trends. This year, they estimate that the country’s GDP decreased by 3.5 percent. Off the top of my head, this seems a fairly reasonable estimate, particularly since sanctions were only in force for a minor part of the year (late fall and onward). Some quick thoughts below:

As always, remember: estimate GDP in North Korea is very, very hard. How do you evaluate, for example, the market sector versus the state sector? Given how complicated and partially opaque North Korea’s system for pricing it, how can a GDP figure even be reasonably estimated? That said, BOK has been doing this for many years, and their figures are, for all their faults and flaws, some of the most reasonable estimates among the few that exist. Still, as one of the leading experts in the field once told a class of grad students studying the Korean economy: if someone gives you a figure on the North Korean economy with a specific decimal number, you can be sure that it’s wrong.

Some news outlets have made a big number of the fact that this contraction is the largest for over two decades, according to the BOK numbers. While that is true, the proportions are very different: in 1997, BOK estimates that the economy contracted by 6.5 percent, that is, almost double the contraction of 2017. So we’re not talking about any crisis nearly as significant as the famine of the 1990s.

BOK estimates a drop by 1.3 percent in agricultural and fisheries production. Notably, still, market prices for food have looked completely normal throughout the year, as this blog has noted several times before. It’s unclear how exactly agricultural production is estimated, and what the “sector” here really means – only what goes into the state-side of agricultural production and supply, or the sale of surplus production on the semi-private markets? The latter may very well be underestimated given how tricky it is to asses what share of agricultural production still lies firmly and solely within the state system.

It’s unclear how much of the shortfall in electricity production is compensated for by items like solar panels and other forms of electricity generation increasingly prevalent on the ground. Many have noted the various creative ways in which much of the North Korean population already adapts to the shortfall and unreliability of public supply of electricity.

The estimated trade numbers are very dire but also probably approximately realistic. Though the 37 percent shortfall in exports may be an overestimate given that they (presumably) don’t account for smuggling, it is undeniable that the economy is taking a very large hit from sanctions. People who recently visited the Chinese border speak of very low levels of activity in goods transports and the like. This gives cause for some skepticism toward the reports claiming that Chinese sanctions enforcement has gone much more lax lately: it may well have, but that hardly means the doors are flung open. At the same time, imports went up 1.8 percent. Either China is letting North Korea run a trade deficit which they assume they’ll get back once sanctions are eased, or the regime has much more currency stashed away to pay with the goods for than many have thought. The truth may lie somewhere in the middle there.

 

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