Northern Economy -10% Forecast... Growing Fear of a Perfect Storm

Triple Hardships of COVID-19, Floods, and Typhoons
Trade Cliff Due to Border Closures
Concerns Over Transition from Humanitarian Crisis to Security Crisis

North Korean State Affairs Commission Chairman Kim Jong Un inspected the K?md?k district in South Hamgyong Province, which suffered typhoon damage last summer, the Workers' Party organ Rodong Sinmun reported on October 14. Chairman Kim is seen smiling brightly while touring the housing complex under reconstruction. Currently, about 2,300 housing units are being newly built in the K?md?k district, with construction progress reaching 60% of the total project.

North Korea's economic growth rate this year is projected to be -10% due to the impact of the novel coronavirus disease (COVID-19) and international sanctions. This is even lower than the -6.5% recorded during the "Arduous March" period in 1997.

Since the Hanoi North Korea-US summit ended in a "no deal" last February and sanctions remain in place, the outlook for North Korea's economy this year was not very optimistic. However, with the overlap of COVID-19 at the beginning of the year and typhoons and floods in the summer, concerns have arisen that the North Korean economy could face a "perfect storm."

Fitch Solutions, a consulting firm affiliated with the international credit rating agency Fitch, initially forecast North Korea's GDP growth rate this year at 3.7%. Then, in June, it sharply revised it downward by 9.7 percentage points to -6%, and three months later, it lowered it again to -8.5%.

The biggest factor was the freeze in trade with China, which accounts for more than 90% of North Korea's foreign trade. According to the General Administration of Customs of China, trade between North Korea and China in September amounted to $20.818 million (approximately 23.49 billion KRW), down 19.4% from $25.832 million (approximately 29.15 billion KRW) in August. North Korea proactively closed its borders and controlled the inflow of foreign goods from late January when COVID-19 was spreading in China.

As the triple hardships deepen, there is even a forecast that North Korea's economic growth rate could fall to -10%. Professor Kim Byung-yeon of Seoul National University said at a North Korea economy webinar hosted by the University of California, San Diego's School of Global Policy and Strategy on the 9th (local time), "North Korea's economic growth rate could fall between -5% and -10%."

The trade cliff is also eroding North Korea's foreign currency reserves. Despite a rapid decrease in North Korea's foreign currency reserves due to a sharp drop in exports caused by sanctions, the market exchange rate remains stable. The won-dollar exchange rate slightly increased from 8,373 KRW on January 1 to 8,303 KRW on September 2. The won-yuan exchange rate also recorded 1,210 KRW to 1,173 KRW during the same period. This is presumed to be because North Korean authorities are desperately managing the exchange rate through their foreign currency holdings.

North Korea held a military parade on October 10th to commemorate the 75th anniversary of the founding of the Workers' Party, according to the Workers' Party's official newspaper, Rodong Sinmun. Standing at the podium, Chairman Kim Jong-un solemnly raised his right hand in a salute as he looked over the square where the parade was taking place.

Im Su-ho, head of the North Korea Research Division at the National Security Strategy Institute, stated in a report on the 4th that "As of the end of 2019, North Korea's foreign currency reserves are estimated to be at least $5 to $5.6 billion," and considering recent North Korean trade trends, there is a possibility of complete depletion of foreign currency within 4 to 5 years. North Korea, struggling with foreign currency shortages, is known to be supplementing foreign currency through cyber hacking and selling fishing rights.

The severe shock to North Korea's economy has a considerable likelihood of leading to a security crisis on the Korean Peninsula. Im Su-ho said in a report last September, "The possibility of a so-called perfect storm, where North Korea's trade, industry, finance, and markets collapse or fall into chaos simultaneously, is increasing," and added, "The international community needs to promptly launch a large-scale humanitarian aid program to prevent a large-scale humanitarian crisis in North Korea and to ensure that such a crisis does not escalate into a security threat."

This content was produced with the assistance of AI translation services.