By Soo-hyang Choi

SEOUL (Reuters) - North Korea's economy shrank in 2021 for a second straight year after suffering its biggest contraction in more than two decades the previous year amid U.N. sanctions and COVID-19 lockdowns, South Korea's central bank said on Wednesday.

Gross domestic product (GDP) in the isolated country fell 0.1% last year in real terms, the Bank of Korea (BOK) said, following a 4.5% plunge -- the worst since 1997 -- in 2020.

North Korea has acknowledged facing economic challenges, but does not release hard data. The estimates released by South Korea's central bank are considered among the most reliable indicators.

The pace of slowdown eased thanks to the growth in the production of agriculture and forestry due to improved weather conditions, a Bank of Korea (BOK) official told reporters in Seoul.

"The mining and manufacturing and service sectors contracted as intense U.N. Security Council sanctions against North Korea's economy and COVID-19 induced lockdown measures continued but favourable weather conditions led to growth in the agricultural and forestry sector," he said.

The BOK's estimates showed that industrial output, which accounts for 28.3% of the North Korean economy, decreased 6.5%, while output from agriculture, forestry and fisheries sector, which accounts for 23.8% of the country's economy, rose 6.2%.

The services sector, which accounts for a third of the economy, slipped 0.4%.

The North's trade volume, meanwhile, plunged 17.3% to $710 million last year, amid a strict closure of its borders.

North Korea temporarily resumed freight train operations with China early this year, but suspended them again in April due to heightened fears of the coronavirus.

The reclusive country has been battling its first acknowledged outbreak of COVID-19 since mid-May though Pyongyang claims 99.99% of the 4.77 million fever patients have fully recovered, and it reported only 18 new fever cases on Wednesday. Due to an apparent lack of testing, North Korea has not released any figures for confirmed COVID cases.

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

(Reporting by Soo-hyang Choi; Additional reporting by Joori Roh; Editing by Simon Cameron-Moore)