The main drag for the efforts in central Europe to stage a recovery from the novel coronavirus pandemic hit to the economy could be the auto industry which has for long been a driver of economic growth of the region.
Foreign carmakers had invested heavily in a region that was abound with a cheap and efficient workforce ever since the end of communism in central Europe about three decades ago. The auto industry has since turned out to be an important a conduit for foreign investment in the region as well as for growth and employment.
But analysts expect the auto industry to be worst hit by the pandemic than many others in central Europe because of closure of production in factories because of the pandemic induced lockdowns and with many factories still not functioning at full throttle.
The countries likely to be affected by this include the Czech Republic, Hungary and Slovakia, for whom the auto industry is very important.
“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.
In a letter written by the heads of the Czech, Polish, Hungarian and Slovak auto industry associations to other European Union states and EU institutions back in April, the heads said that 1.3 million people were directly or indirectly employed in the auto sector in these four countries and about a fifth of EU vehicle production was done by the sector in these countries.
The auto sector is responsible for generating 4-6% of gross domestic product of Hungary and a tenth for the Czech Republic. The auto industry also accounts for about 13% of the GDP of Slovakia as ell as for half of its industrial production.
But with the pandemic and a general slowdown of car demand globally, some of the cat makers of central Europe expect output to slump by 20-25% this year. That will cause a dent in the GDP of the central European countries.
In the region, mass layoffs have largely been avoided by car makers and currently are bringing back employees and are gradually increasing the number of shifts.
A 20% drop in output this year compared to its original forecast is expected by Suzuki in Hungary.
According to estimates of the Czech Automotive Industry Association, there will be a slump of about 20% in car production in the country for 2020 with a consequent drop of at least 215 billion crowns ($9.6 billion) in revenues for the auto sector.
A request for re-establishment of supply chains, financial support and a review of regulatory requirements was sought by the four national auto industry associations from the EU in their April letter.
There had been no response yet, said Peter Erdelyi, chairman of the Hungarian Car Importers’ Association.
(Adapted from EconomicTimes.com)