It was a sharp reversal from 3.9 percent growth in 2016, according to the Bank of Korea (BOK).
The UN Security Council last year banned the North's main exports -- coal and other mineral resources, fisheries and textile products -- to cut off its access to hard currency in response to Pyongyang's pursuit of nuclear weapons and ballistic missiles.
As a result the North's mining industry slumped 11 percent, the BOK said, having grown 8.4 percent in 2016.
Manufacturing output fell 6.9 percent - down from 4.8 percent growth - while agriculture and fisheries slipped 1.3 percent, after also expanding in 2016.
"Sanctions against the North were much more intense last year," a BOK official told journalists, adding that bad weather was also a factor.
Exports tumbled 37.2 percent to $1.77 billion, while imports inched up 1.8 percent to $3.78 billion.
Inter-Korean trade collapsed 99.7 percent on-year to a mere $900,000 after the South shut down the joint Kaesong industrial complex in the North amid tensions over the North's nuclear and missile development.
The North does not publish economic statistics of its own, leaving outside estimates - which by definition are based on limited information - as the only available figures for its financial performance.
According to the BOK, the North had a per-capita Gross National Income of 1.46 million won ($1,011), while the South's was 23 times higher.
The North, which holds most of the peninsula's mineral resources, was once wealthier than the South, but decades of mismanagement and the demise of its former paymaster the Soviet Union have left it deeply impoverished and suffering chronic food shortages.
Despite a historic summit with the North's leader Kim Jong Un in Singapore in June, US President Donald Trump has said sanctions would remain in force until the North takes substantial steps toward removing its nuclear arsenal.
"The UN imposed fresh sanctions against the North in August and December, and those will make a serious dent in the North Korean economy this year," another BOK official said.
"Especially, trade with China which accounts for 95 percent of the North's overall transactions, fell sharply" in the first half of 2018, he added.
Published : July 20, 2018
By : Agence France-Presse Seoul