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North Korea Country Risk Report Q1 2015

North Korea Country Risk Report Q1 2015

Core Views

North Korea will see dramatic political changes over the comingdecade as rising internal pressure forces a transformation of leadership.

Although Kim Jong Un will likely remain in charge for the nextfew years, he will eventually be politically neutralised or removedby a coup or regime collapse, which could emerge with surprisingspeed.

The biggest near-term political risks stem from an internal powerstruggle among officials below Kim Jong Un, namely General PoliticalBureau director Hwang Pyong So and ruling Korean Workers'Party secretary Choe Ryong Hae. Kim has repeatedly reshuffled themilitary high command since 2012, indicating problems in controllingthe powerful armed forces.

North Korea's economy has tremendous growth potential, and expansionwill gradually accelerate towards the high single digits over thecoming decade as the regime undertakes reform by stealth rather thanradical policy shifts. However, near-term growth will be constrainedby the adverse geopolitical climate, and there are certainly severedownside risks due to the possibility of internal conflict.

Major Forecast Changes

We forecast real GDP growth of 2.0 and 2.5% in 2015 and 2016respectively, representing a slight increase from previous years'estimates by South Korea's central bank (the North does not releaseany economic data). By the end of our 10-year forecast period in2024, we expect real GDP growth to accelerate to around 7-8% ascumulative economic reforms take effect.

Sectors of the North Korean economy that show considerable potentialfor future growth include private consumption, manufacturing,mining and infrastructure development. However, their expansionis contingent on an improvement in relations with the South, whichwould be the main source of finance and expertise.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
An Eventful Period Ahead
North Korea faces an eventful period ahead as a power struggle continues in Pyongyang and the regime seeks to break out of isolation.
Near-term risks appear to be contained, but medium-to-long-term risks are rising.
Table: Selected Key Figures
Foreign Policy
Implications Of Vastly Bigger Nuclear Arsenal
Independent US projections that North Korea could possess 100 nuclear warheads by 2020 imply a dramatic increase in geopolitical
risks in East Asia, and this will prompt South Korea and Japan to rethink their non-nuclear status. Pyongyang will not give up its
atomic arsenal, but it may eventually offer a reduction of its stockpile in exchange for economic rewards. The biggest risk would be an
unauthorised nuclear launch if central authority in the North breaks down amid regime collapse.
Table: Status Of World Nuclear Forces, December 2014
Long-Term Political Outlook
Regime Transformation Unavoidable
North Korea will see dramatic political changes over the coming decade as rising internal pressure forces a transformation of leadership.
Although Kim Jong Un will likely remain in charge for the next few years, he will eventually be politically neutralised or removed by a
coup or regime collapse, which could emerge with surprising speed.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Long-Term Economic Outlook
'Stealthy' Reform To Unleash Big Changes
North Korea's economy has tremendous growth potential, and expansion will gradually accelerate towards the high single digits over
the coming decade as the regime undertakes reform by stealth rather than radical policy shifts. However, near-term growth will be
constrained by the adverse geopolitical climate, and there are certainly severe downside risks due to the possibility of internal conflict.
Table: Long-Term Macroeconomic Forecasts
Table: Economic Structure
Chapter 3: Demographic Outlook
Demographic Outlook 2015
Table: Population By Age Group (North Korea 1990-2025)
Table: Population By Age Group % (North Korea 1990-2025)
Table: Population Headline Indicators (North Korea 1990-2025)
Table: Key Population Ratios (North Korea 1990-2025)
Table: Urban/Rural Population & Life Expectancy (North Korea 1990-2025)
Chapter 4: BMI Global Macro Outlook
Global Outlook
Softening Growth Picture
Table: Global Assumptions
Table: Developed States, Real GDP GrowtH, %
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Table: Emerging Markets, Real GDP Growth, %

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