Czech Industrial Model Shaken by Energy Crisis

Heavily dependent on the automotive sector, cheap energy and Germany, the Czech economy will experience one of the biggest slowdowns in 2023.

Officially, the decision had only been postponed, but it would have come at the right time to brighten up the Czech economic outlook, which is very gloomy for the months to come.

On Friday, December 9, the Volkswagen Group announced that due to economic uncertainties, it would not immediately choose the location of its next electric battery gigafactory, planned for Eastern Europe.

The Czech government had been campaigning for months to have the site in Plzen, over its Hungarian, Slovakian and Polish competitors.

“If there’s the option of building a battery factory in Europe, where electricity costs €0.15 per kilowatt hour, but it’s possible to get it in China or America for €0.02 or €0.03, we are not in a position to say that we will make this choice out of solidarity,” said Thomas Schäfer, the group’s boss, immediately after the announcement.

For the Czech Republic, the stakes are colossal: “This gigafactory is decisive for the future of our automotive industry and, above all, for its ability to make the shift to electric,” said Jiri Dvorak, a specialist on this issue at the Grant Thornton consulting firm in Prague. And, more broadly, it is crucial for the whole country: The automotive industry alone counts for 10% of the gross domestic product (GDP), 8% of jobs and 25% of exports.

Highly dependent on Germany, which takes in a third of its manufacturing, the Czech industrial sector as a whole represents nearly 30% of GDP – the highest level in Europe.

“However, it has been particularly badly affected since the outbreak of the Covid-19 pandemic” in early 2020, explained Grzegorz Sielewicz, a regional specialist at French credit insurer Coface. Penalized by the collapse of demand and the German economic slowdown, the industry has, in the meantime, faced shortages of semiconductors. This hindered manufacturing recovery in 2021.
Deloitte: Czechia facing recession, GDP expected to fall by 1.1 %

The Czech economy is facing a recession this year caused by the energy crisis and inflation, with GDP expected to fall by 1.1 % , Deloitte predicts in its latest report.

According to the study, real wages will fall again this year, but unemployment should remain at its current level.

Deloitte says the economic downturn will also threaten compliance with the state budget deficit planned at CZK 295 billion.

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