• By The Financial District


The auto industry, long a driver of economic growth in central Europe, is likely to be one of the main drags on the region’s efforts this year to recover from the impact of COVID-19, Krisztina Than and Jason Hovet wrote for Reuters on July 30, 2020. After communist rule ended in central Europe three decades ago, foreign carmakers invested heavily in a region that had a cheap and efficient workforce. The auto sector became an important source of foreign investment, employment and growth.

But with car production hit by factories idling during coronavirus lockdowns, and many still not back at full throttle, the industry is expected to be worse hit by COVID-19 than many others in central Europe.

That is bad news for the Czech Republic, Hungary and Slovakia, which are particularly reliant on the auto industry. The sector generates 4-6% of Hungary’s gross domestic product and a tenth of the Czech Republic’s GDP. In Slovakia, it accounts for 13% of GDP and half of industrial production. But some car producers in central Europe expect output to drop 20-25% this year, reflecting a global production slump, and GDP is likely to be dented.

“Proportionally this sector is expected to suffer the biggest drop in the manufacturing sector in the region. This is where the recovery will be the slowest so it could be one of the main drags on GDP,” said Peter Virovacz, an economist at ING in Budapest. Writing to other European Union states and EU institutions in April, the heads of the Czech, Polish, Hungarian and Slovak auto industry associations said their four countries employed 1.3 million people directly or indirectly in the auto sector and accounted for nearly a fifth of EU vehicle production.