The North Korean economy, like the rest of the world, is now likely hurting as a result of the novel coronavirus. Economies are composed of different sectors, actors, and dynamics, which are interconnected and the dynamics mean that they are complex.

We do not know how long the current crisis will last and how it will affect behavior in North Korea’s major export market (China) or the supply of inputs and consumer goods from China.

Much of the world faces a demand shock, and lots of businesses providing goods/services suddenly see demand collapse (hospitality, tourism, travel, leisure, etc.) or surge (medicine, e-commerce, etc.). They also face a shock with supply chains out of Western Europe and China disrupted by measures taken to prevent further spread of the coronavirus.

In North Korea, a supply shock from the coronavirus is already evident in available data from February. Unfortunately, there is no Daily NK data yet available for March, so it is unclear whether markets have moved significantly since the situation has stabilized inside China.

However, from available data, an NK Pro analysis indicates the following:

• Rice prices have risen, as have corn prices, but the initial price spikes were largest in Hyesan, pointing to the dependence of Hyesan on imported rice. The price rises were considerable, and have endured for over 2 months now;
• The biggest moves in observable North Korean market data are to be seen in the fuel market, with gas and diesel prices up by as much as 30% in mid-February compared to December, even as global oil prices have fallen considerably;
• The Korean Won has remained stable against both the USD and RMB in Daily NK data, but Asia Press data indicates that the won remains well above prior levels against both the U.S. dollar and the Chinese RMB;
• This implies that domestic demand has contracted considerably less than domestic supply over this period, and it is unclear whether supply will now improve with signs of normalization in China;
• It remains to be seen how things will develop as China’s economy normalizes, but markets are likely to become more volatile if there is a fresh outbreak of the coronavirus in China. If not, prices of fuel and food are likely to fall if recent trends are any guide.

Supply shocks and stability

North Korea effectively closed its borders in late January, and major market movements were visible from early February. Yet the market did not move uniformly, and some classes of assets/commodities saw large price swings while others did not. All data cited below is from Daily NK unless otherwise stated (calculations by the author).

Food price spike and stabilization

Food prices have spiked since late January, with rice in the border city of Hyesan seeing the largest spikes. Corn prices are not yet at record levels, but prices are now higher than they have been since July 2019, and the speed of the rise is concerning though far from unprecedented. Chart 1 gives the percentage change on December 22 prices.

Chart 1: Percentage change in Food prices since December 22

Prices have seemingly stabilized outside of Hyesan around a new normal above where they were prior. For corn, these prices are still well under the peak price over the past five years, but for rice we saw a new record price in Hyesan.

That said, rice prices are now back in the upper range of prices over the past five years but still below their peak. If there is a fresh outbreak of the coronavirus in China, however, prices are likely to rise again.

Fuel price spikes

Gas prices have risen considerably since late January at a time when oil prices have fallen considerably worldwide. This is almost certainly due to a loss of supply from China. The price movements are shown in Chart 2.

Diesel prices remained basically stagnant until late January, and then spiked (see Chart 3). The price rises are concerning and are larger than those seen for other commodities, their suddenness also pointing to a sudden supply shock.

North Korean consumers can only hope that prices begin to follow global oil market trends again as China’s economy normalizes, though how quickly normalization will translate into lower fuel prices is uncertain. It should be noted, of course, these spikes are far less dramatic than what North Korean markets saw in 2017.

The stable Won

The Korean Won (NKW) in Pyongyang has not moved much against either the USD or the RMB since late January. The RMB market has been a tad more volatile in Sinuiju and Hyesan, but the value of the RMB has stabilized since mid-February. Generally, the forex market has been less volatile since 2014 than the food or fuel markets, and this trend has largely continued.

Conclusions

North Korea was hit by a supply shock in its food and fuel markets, but these shocks had little effect on Pyongyang’s forex market if Daily NK data is accurate. Effects were evident in Sinuiju and Hyesan’s exchange rates, however, and such effects are also in Asia Press data (the source of which is relatively close to Hyesan).

Fuel prices remain inflated given current trends in the global oil market, and food prices also remain inflated (especially rice prices) relative to prior trends. As the coronavirus situation in China stabilizes, China’s economic situation will also likely normalize and this should help push down prices inside North Korea’s market.

That said, if the spread of the coronavirus worsens inside the DPRK, this may have unpredictable and likely negative effects on North Korea’s market conditions.

Edited by James Fretwell and Oliver Hotham