Czech Republic: Skoda, is bucking an economic downturn unfolding in its crucial ally Germany

A shadow is hanging over the European economy

Czech Republic: Skoda, is bucking an economic downturn unfolding in its crucial ally Germany

There is a shadow hanging over the European economy. The ascent of Donald Trump to the White House has exposed brewing fragilities within the continent’s economy and military prowess. That hasn’t been evident anywhere more than in Germany, the industrial powerhouse reeling from two years of negative growth.

Now, Germany’s allies, who have lived in their own shadow of Europe’s biggest economy, are left facing questions about their own survival. That’s most evident in its neighbor to the east: the Czech Republic.

Within the giant $348 billion Volkswagen group lies Skoda, a quiet success story for the Czech Republic that says as much about the country’s post-Cold War ascension as it does about its long-term risks. 

The Czech Republic, also known as Czechia, has built its post-Cold War economy in the same way Germany did post-reunification: with a focus on industry. Manufacturing as a share of GDP has hovered above 20% in the country for the last 30 years, joining Germany in bucking the Western trend of deindustrialization.

A third of Czechia’s exports go to Germany, while 20% of its imports come from its closest neighbor.

The ties between the Czech Republic and Germany are best exemplified by Skoda, the Czech Republic’s largest company, which is owned by Germany’s largest company, Volkswagen.

Skoda makes up a significant chunk of the massive Volkswagen group, which also contains Audi, Seat, Porsche, and the Volkswagen brand itself.

The carmaker raked in €26.5 billion in revenues in 2023, a massive 26% increase on 2022, and equivalent to nearly 10% of the Czechian economy. 

If it were an independent company, Skoda would rank in the top 150 of the Fortune 500 Europe, as one of the top 10 carmakers, and by far the largest Czech company on the list.

The automaker also hasn’t faltered in recent years like its fellow automakers under the Volkswagen umbrella. In the first nine months of 2024, Skoda increased operating profits by nearly 35% compared with the same period in 2023, while the Volkswagen group as a whole faced a 10% decline in profits.

The group’s profit margin in the first nine months of 2024 of 8.3% also puts it among the most profitable brands across Volkswagen and well above the collective group margin of 5.6%.

Skoda is, according to David Havrlant, chief economist for the Czech Republic at ING, the “golden egg” within the Volkswagen group, he told Fortune.

The carmaker’s sales are overwhelmingly Europe-focused. Around nine in 10 of its cars were delivered to Europe in 2023, with the remainder going to Asia-Pacific. That appears to have shielded the manufacturer from the fall-off in sales experienced by Volkswagen, which built its dominance on China’s burgeoning consumer market, which has gone into reverse in recent years.

The Czech Republic, alongside Germany, struggled through 2024, with GDP declining 0.3% in the wake of sanctions on Russian energy. 

Yet the country is expected to rebound faster than its partner to the West, with growth projections of 2.3% in 2025, almost triple Germany’s projected growth of 0.8%, according to International Monetary Fund (IMF) forecasts.

The Czech economy has proved more attractive for businesses looking to expand their footprint. Wages in the country, for example, are around half what they are in Germany, lowering input costs.

Domestic demand is expected to be a big driver of Czech GDP growth this year, reflective of higher consumer confidence. However, seemingly unshakeable bonds between Czechia and Germany continue to threaten the country’s economy.

Source: Fortune.com

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