Pandemic COVID-19 has sharply reduced demand for cars and disrupted the car industry’s supply chains, bad news for Central Europe’s economies, which depend significantly on it, writes Deutsche Welle.
In the Czech Republic, car production will fall by 13% this year to about 1 million vehicles, according to Autosap, the industry association. The country’s largest carmakers have been forced to cut production or even shut it down in recent months amid the car supply crisis.
Car factories in Slovakia have also stopped production. Industry Associatione of the country, ZAP, spthat after an 11% decline in 2020, production will not return to pre-pandemic levels this year. In Hungary, the economy grew below expectations in the third quarter in the context of the stagnation of the car industry.
“It is a classic example of external shock, and economies heavily dependent on the car industry suffer from a lack of diversification~, shows Richard Grieveson from within Institute of Internal Economic StudiesVienna.
The production of the main car manufacturers in Central Europe fell by 20% between January and August, according to Capital Economics, which warns that “the situation will worsen before it improves”.
The car industry accounts for about 9% of the Czech Republic’s GDP, accounting for over 20% of exports. The industry has about 180,000 direct employees and about 500,000 in total. Invoking the problems in this industry, Komercni banka economists have recently reduced their estimates of the country’s economic growth for 2021 to only 1.9% from over 4%.
Slovakia could be hit even harder as its four main plants turn the country into the world’s largest per capita carmaker. The car industry accounts for 13% of the Slovak economy and about half of industrial production. The sector has approximately 275,000 direct and indirect employees.
With the car industry accounting for 13% of GDP, almost half of industrial production and 46% of exports, the Slovak central bank recently revised down its economic growth estimate for 2021 to 3.5%.
Hungary is also heavily dependent on the automotive sector. Its contribution to GDP is 4-6%, representing 21% of exports in 2019. In September, the country’s industrial production fell by 2.3% year-on-year given that car production, the largest segment of the sector Hungarian industrial, contracted at an annual rate of 25.9% amid the global semiconductor crisis, Daily News Hungary notes.
The economic growth in Q3 was below the expectations of analysts, which was significantly diminished by the stagnation of car production due to the shortage of components, according to Portfolio.
The semiconductor crisis is expected to moderate by mid-2022, but some suggest that the current difficulties should serve as a warning of more acute problems facing Europe’s smaller and more open economies.