GERMANY’S CRISIS: THE IMPACT ON CZECH ECONOMY
According to the Leibniz Institute for Economic Research in Halle (IWH), the number of insolvencies of partnerships and companies in Germany in December is 24% higher than in the same month of the previous year. As a result, more than 15,000 jobs are affected in 10% of the insolvent companies. In addition, the largest failure was the automobile supplier WKW with over 2,000 employees. For its analysis, the IWH evaluates current insolvency notices from German registry courts and links them to the balance sheet data of the companies concerned.
In addition, it can be said that the fourth quarter of 2024 saw the highest number of bankruptcies since the end of the great financial and economic crisis of 2009.
However, Steffen Müller, the IWH’s head of insolvency research, says that the number of insolvencies is not entirely due to economic problems and rising energy and wage costs, but it also associates them with painful but necessary market adjustments, leaving room for sustainable businesses.
For example, in the automotive sector, Jonas Eckhardt, an expert at the consultancy firm “Falkensteg”, points out that there will be several staff cuts and plant closures as part of a restructuring process. These cuts show that companies linked to traditional car production are facing great difficulties. This is because the automotive industry is changing rapidly, especially towards more modern electric vehicles and technologies, leaving behind companies too dependent on old production methods.
Large companies such as Bosch, Continental and Volkswagen are already scaling back their operations, which means they are either closing plants or reducing the number of employees. This puts thousands of jobs at risk, showing how serious and widespread the crisis is in the sector.
What impact will it have on the Czech Republic?
As mentioned above, the sector most affected by this crisis is the automotive industry. Indeed, a growth of insolvencies of 40/50% is expected in the new year, mainly due to energy costs, but also the transition towards the production of electric cars. In fact, the European Union has set targets such as selling only zero-emission vehicles by 2035.
As a result, the big German car companies are cutting production costs, requiring much less orders from Czech suppliers and causing a slowdown in the activity of the sector.
The automotive industry in the Czech Republic accounts for about a quarter of the country’s total exports, in fact it is an important center of automobile production in Europe, thanks to Škoda Auto, Hyundai and Toyota.
This requires diversification of markets, so as to reduce dependence on traditional partners such as Germany. It is also important to balance diversification with consolidation of already strong sectors in order to exploit economies of scale and bear a lower risk of bankruptcies. For example, some Czech companies such as Linet and VCHD Cargo are trying to grow through mergers and acquisitions, taking advantage of the German economic difficulties.
The economic crisis and changes in the automotive sector represent a significant challenge for both Germany and the Czech Republic, highlighting the need to adapt to a rapidly changing environment. For the Czech Republic, the German slowdown is a wake-up call for rethinking long-term strategies: diversifying markets, implementing innovation in the automotive sector and providing consolidation of existing excellence will be key actions to tackle change. However, the question remains as to how the country will balance these needs with its traditional economic relations and whether it will be able to seize the opportunities hidden in the difficulties of others, such as Germany. Will this challenge start a new phase of growth for Czech Republic?
Sources: https://www.iwh-halle.de/ , https://www.expats.cz/
