By Jihoon Lee

SEOUL North Korea's economy shrank for a third consecutive year in 2022, as COVID-19 restrictions and U.N. sanctions continued to weigh on economic activity in the isolated authoritarian state, according to estimates by the South's central bank.

Foreign trade posted a record rebound, however, after drying up during the pandemic and indicating a loosening of border controls. China is by far the country's main trading partner.

Gross domestic product (GDP) contracted 0.2% in real terms in 2022, the Bank of Korea (BOK) said on Friday, after a 0.1% fall in 2021 and the prior year's 4.5% plunge - the worst since 1997.

The BOK's estimates are considered among the most reliable indicators of economic activity in the North, which does not publish official data.

"Foreign trade increased, led by intermediate goods such as textile products, and internal virus controls eased a little, but the impact from economic sanctions and border closures continued while weather conditions worsened," a BOK official told a briefing.

The data showed that industrial output fell 1.3%, while output from agriculture, forestry and fisheries dropped 2.1%. The services sector, however, rose 1.0%, the biggest gain in eight years.

The industrial, agricultural and services sectors accounted for 30.5%, 23.1% and 33.4% of the economy in 2022, respectively.

The North's trade volume rebounded by a record 122.3% to $1.59 billion, after plunging 17.4% and 73.5% in 2021 and 2020, respectively. The figure, however, was still only about half of the $3.25 billion in 2019 before the pandemic.

"It was due to resumption of trade with China, which accounted for 96.7% of total trade, while strict border controls eased a little, also contributing to growth in the transportation and services sectors," the official said.

North Korea officially declared victory over the pandemic in August 2022, three months after its first acknowledged COVID-19 outbreak and after shutting off most contact with the rest of the world.

North Korea's nominal gross national income in 2022 was estimated to be 1.43 million won ($1,116) per capita, equivalent to just 3.4% of the South's 42.49 million won.

The BOK has been publishing its estimates of the North Korean economy since 1991, based on information from various sources including intelligence and foreign trading agencies and data from the South's unification ministry.

($1 = 1,281.8600 won)

(Reporting by Jihoon Lee; Editing by Ed Davies)