The January issue reviews North Korea’s economic performance in 2025―the final year of the five-year national economic development plan―and assesses key factors shaping the outlook for 2026. The economy has moved beyond the COVID-19 border-closure shock, showing a recovery led by the official sector where the state concentrates resources and control. This recovery, however, remains narrow in scope. Trade with China has rebounded toward pre-sanctions levels, and closer cooperation with Russia has supported selected industries, though spillovers to markets and private activity remain limited. Industrial and agricultural output improved under a strategy of policy prioritization and regional development, aided by favorable weather conditions. Fiscal conditions also appear to have entered a phase of gradual normalization from 2024. In contrast, market indicators have weakened. Stronger state control over trade and distribution has coincided with sharp exchange-rate depreciation and persistent inflation, eroding households’ real purchasing power and exposing structural constraints that limit the diffusion of official-sector gains. With the 9th Party Congress approaching, 2026 represents a critical turning point. The durability of centralized economic management, prospects for exchange-rate and price stability, and changes in the external environment will be decisive in shaping North Korea’s economic path ahead.

Heterogeneity and Gross Worker Flows / WEH-SOL MOON This paper extends the three-state model of labor supply and worker flows developed by Krusell, Mukoyama, Rogerson and ？ahin (American Economic Review, 2017) to study dynamic individual behavior by allowing for ex-ante heterogeneity in workers’ abilities in the market and in their valuation of non-market time. The extended model replicates the key features of the distributions of personal employment rates, OLF rates, and residual wages found in the SIPP data. Individuals with relatively high rents from being employed are more likely to stay in the labor force by cycling back and forth between employment and unemployment from month to month. Individuals with relatively low rents from employment transition between employment and OLF. Decomposing the Growth of Part-time Work in South Korea, 2010-2024 / SU HWAN CHUNG This paper examines the factors contributing to the growth of part-time work in South Korea from 2010 to 2024, during which the fraction of part-time workers doubled. A decomposition analysis suggests that changes in the workforce composition account for approximately 30 percent of this growth, primarily driven by workforce aging. However, the explanatory power drops to around 10 percent when excluding workers likely to participate in a government program providing parttime jobs for older workers. This limited explanatory power is attributed to substantial within-group increases and a declining fraction of young workers, partially offsetting the expansion of older workers. These findings suggest that further research is needed to investigate factors beyond compositional changes to explain the recent growth of part-time work in South Korea. Heterogeneous Impacts of the U.S.-China Trade War on Korea: What Drives Industry Differences? / HEEHYUN LIM This paper analyzes how the U.S.？China trade war affected Korean industries and identifies the industry characteristics that determined which industries gained or lost. I show that heterogeneity in responses is closely linked to capital intensity and export intensity, highlighting the role of economies of scale and export readiness. Using detailed industry-level data from Korean manufacturing, the analysis finds that capital-intensive industries with substantial pre-war investments and industries with high export intensity achieved greater growth and cost reductions following the tariff shocks. These findings indicate that industries positioned to expand their scale captured the gains, while others were left behind, emphasizing the importance of targeted and differentiated policy support for pre-investment, capital deepening, and export infrastructure ultimately to enable more industries to leverage external trade disruptions as opportunities for sustained growth. Effects of Weather Conditions on Price in Korea / Seunghee Lee This paper examines the effects of unexpected changes in weather conditions on inflation in Korea. Using a structural vector autoregression (SVAR) model, we analyze how changes in temperature and precipitation influence price dynamics across different components of the consumer price index (CPI). Our empirical analysis reveals that unexpected changes in weather indices induce significant volatility in fresh food prices and exert direct impacts on consumer inflation, with precipitation changes contributing more substantially to short-term price increases than temperature variations. The effects are particularly pronounced during summer. However, core inflation, which excludes volatile food and energy components, remains largely unresponsive to weather indices. Through a regression analysis examining the interaction between headline and core inflation, we find that consumer prices tend to revert to core inflation levels, suggesting that weather-induced price fluctuations have limited medium-term impacts on the underlying inflation trend. These findings indicate that while weather changes may increase short-term price volatility through agricultural supply disruptions, monetary policy responses to such temporary fluctuations may be ineffective. Accordingly, alternative policy measures focusing on supply diversification and climate resilience should be prioritized.

In November 2025, industrial production, services production, facilities investment, and construction investment increased, while retail sales declined. In December 2025, the increase in the number of employed persons moderated, and consumer price rose at a slower pace. In November, production in the industrial sector (up 0.6% m-o-m and down 1.4% y-o-y) , construction sector (up 6.6% m-o-m and down 17.0% y-o-y) and services sector (up 0.7% m-o-m and up 3.0% y-o-y) rose, leading to an increase in total industrial sector (up 0.9% m-o-m and up 0.3% y-o-y). In November, the cyclical indicator of the coincident composite index moved down by 0.4 points and the cyclical indicator of the leading composite index moved up by 0.3 points. In November, retail sales decreased (down 3.3% m-o-m and up 0.8% y-o-y), while facilities investment went up (up 1.5% m-o-m and down 0.1% y-o-y) . In December, the Consumer Sentiment Index (CSI) went down by 2.5 points month-on-month to 109.9. The Composite Business Sentiment Index (CBSI) increased by 1.6 points to 93.7 in December, and the CBSI outlook for January 2026 fell by 1.7 points to 89.4. In December, exports climbed by 13.4 percent year-on-year, supported by strong semiconductor performance. Average daily exports rose by 8.7 percent compared to the same month of previous year. In December, the number of employed persons grew by 168,000 jobs compared to the same month last year and the unemployment rate rose by 0.3 percent points to 4.1 percent. In December, the Consumer Price Index (CPI) climbed by 2.3 percent year-on-year, driven by agricultural products and petroleum prices. The index when excluding food and energy prices grew by 2.0 percent from a year ago. In December, housing prices (up 0.26% m-o-m) and Jeonse (lump-sum deposits with no monthly payments) prices rose (0.28% m-o-m). In December, Korean equity prices went up, yields for Korean Treasury Bond rose, and the Korean Won strengthened against the dollar. Recently, the Korean economy has continued to show a recovery trend, supported by improvements in domestic demand such as consumption and strong export performance led by semiconductors. However, amid heightened month-to-month volatility ？ as indicators that recorded sharp increases in the third quarter have undergone some adjustment due to base effects and extended holidays ？ hiring difficulties in vulnerable sectors persist, and uncertainties remain regarding the pace of recovery in construction investment and the impact of U.S. tariff measures. The global economy continues to face volatility in the global financial markets and concerns over slowing trade and growth, due in part to a deteriorating trade environment following tariff measures by major economies and geopolitical uncertainties. With an aim to broaden growth momentum going forward, the government plans to continue to pursue proactive macroeconomic policies and efforts to revitalize consumption, investment, and exports, while expeditiously implementing the 2026 Economic Growth Strategy to boost the potential growth, promoting balanced and inclusive growth, overcoming polarization, and strengthening the foundation for a major economic leap forward.

The year 2024 marked a pivotal moment in North Korea’s economic trajectory, defined by significant internal and external shifts. Domestically, the regime intensified its consolidation of control over economic governance, placing renewed emphasis on the Cabinet-centered system. This shift signaled a strategic departure from the semi-decentralized and informal mechanisms that had previously supported macroeconomic stability during the early years of Kim Jong Un’s leadership. Externally, North Korea’s growing military and economic cooperation with Russia opened new channels for sanctioned trade―particularly in the defense sector―while its economic engagement with China showed signs of stagnation, suggesting a potential recalibration of longstanding external dependencies.