There is a shadow hanging on Europe. The ascent of Donald Trump in the White House revealed fragility of brewing within the economy of the continent and military prowess. This was not more obvious nowhere than in Germany, industrial power in shock of two years of negative growth.
Now, the German allies, who have lived in their own shadow of the greatest economy in Europe, are faced with questions about their own survival. It is the most obvious in his neighbor in the East: the Czech Republic.
Within the giant group of 348 billion dollars Volkswagen is Skoda, a silent success for the Czech Republic which says as much about the ascent of the country after the Cold War as in its long -term risks.
The Czech Republic, also known as Chechy, built its economy after the Cold War in the same way as Germany has post-uninnations: by emphasizing industry. Manufacturing as part of GDP has hovered over 20% in the country in the past 30 years, joining Germany to shake up the western trend of deindustrialisation.
A third of CCHCH exports go to Germany, while 20% of its imports come from its nearest neighbor.
The links between the Czech Republic and Germany are better illustrated by Skoda, the largest company in the Czech Republic, which belongs to the largest German company, Volkswagen.
Skoda’s strength
Skoda is an important part of the huge Volkswagen group, which also contains Audi, Seat, Porsche and the Volkswagen brand itself.
The automaker raised 26.5 billion euros in revenues in 2023, a massive increase of 26% compared to 2022 and equivalent to almost 10% of the Cheche economy.
If it was an independent company, Skoda would rank in the first 150 of Europe of fortune 500, as one of the 10 best car manufacturers, by far the largest Czech company on the list.
The car manufacturer has also not weakened in recent years as its colleagues manufacturers automakers under the Volkswagen umbrella. In the first nine months of 2024, Skoda increased operating profits by almost 35% compared to the same period in 2023, while the Volkswagen group as a whole faced a 10% drop in profits.
The group’s beneficiary margin in the first nine months of 2024 out of 8.3% also places it among the most profitable brands in Volkswagen and well above the group’s collective margin of 5.6%.
Skoda is, according to David Havrlant, chief economist of the Czech Republic in ING, “the golden egg” within the Volkswagen group, he said Fortune.
Sales of the automaker are oriented towards the massification of Europe. About nine out of 10 of its cars were delivered in Europe in 2023, the rest going to Asia-Pacific. This seems to have protected the manufacturer of the fall of sales experienced by Volkswagen, who has built his domination in the China’s emerging consumption market, which has been reversed in recent years.
Indeed, until 2024, Skoda increased its deliveries by 6.9%, compared to the 1.4% drop in the Volkswagen brand, reflecting a reduction of almost 10% of deliveries in China last year.
This divergence from Volkswagen speaks more broadly to a divergence between Cheche and Germany.
The Czech Republic, alongside Germany, had a hard time in 2024, GDP decreasing by 0.3% following sanctions against Russian energy.
However, the country should bounce back faster than its West partner, with growth projections of 2.3% in 2025, projected growth of almost triple Germany by 0.8%, according to forecasts from the International Monetary Fund (IMF).
The Czech economy has proven to be more attractive for companies seeking to extend their footprint. The wages of the country, for example, are about half of what they are in Germany, which reduces the costs of inputs.
Its wider population also seems to be more content.
“I would say that the Czech consumer is less depressed than the German consumer,” said Ana Boata, responsible for economic research in Allianz Fortune.
Domestic demand should be a large engine of Czech GDP growth this year, reflecting this higher consumer confidence.
But apparently unwavering obligations between Cyon and Germany continue to threaten the country’s economy.
The obstacles of the Cheche
The manufacturing production of Cnoéchie has evolved with Germany since the slowdown of the latter began in 2022. The PMIs of the two countries have been in contraction territory for almost three years while manufacturers are fighting with higher energy costs and a drop in demand, causing the effects of care for downstream producers.
Ladislav Tyll, lecturer at the University of Economy and Commercial in Prague, notes that between manufacturers and companies in the supply chain, the Czechie automotive sector represents about half a million jobs.
“So, frankly, if something is wrong … they are bankrupt, and this country could technically collapse financially,” said Tyll Fortune.
The two countries find it difficult to lower investments, creating an obstacle to future growth.
“It’s really not good for these savings, and it does not point out anything good for the years to come,” said Tyll.
One of the main concerns of AIA for its heavy economy of manufacturing is the oppressive climatic targets. The country joined Italy last November to request relaxation from the EU climatic rules This will lead to the prohibition of the sale of vehicles electroluminescent by 2035.
Boata d’Allianz says 2025 is a year of transition for car manufacturers and the savings they occupy. On the one hand, they will have to improve their production of electric and hybrid vehicles to comply with environmental regulations. On the other hand, this means wading on much more competitive markets assaulted by cheap Chinese manufacturing competitors.
“This will also imply a certain impact on the turnover of Czech suppliers which are essentially linked to German car manufacturers, not only the volume, but also the price,” explains Boata.
Havrlant d’Ing writes a lot about the Czech economy. He says there are four stages of structural crisis that a country must go through before decision -makers can intervene.
“You must recognize that there is a problem. Secondly, you must admit that it is your problem. Third, you must force yourself to cross that you want to do something. And fourth, you do something.”
The Czech Republic is somewhere before the third and four stage and four with regard to its automotive sector, says Havrlant, when he thinks that Germany is stuck in zero point.
Consequently, Havrlant thinks that the Czech economy is slowly divided from Germany.
“Their command books have been bad for so long that so far, it has always been enough to wait for things to improve, but this is no longer the case,” said Havrlant about the relationship of C Tournéque and German.
PolicyAl-wind al
Political history in Chechy is also the same as in Germany and, more and more, in the rest of Europe.
As in Germany, the elections invite in 2025, and there is a tone similar to a survey in the two countries.
Between alternative for Deutschland (AFD) in Germany, the National Rally in France, the brothers of Italy in Italy and the reform in the United Kingdom, the largest economies in Europe were shaken by the support for the rise in far-right political parties ready to upset the status quo.
Thus follows the jingoisetic patriots similar for Europe, the insurgent populist party Cezchien should sweep the elections later in 2025.
Tyll says that the potential victory of patriots for Europe would probably have a positive impact.
Instead, the German elections in February present a risk for the economy of Cyonia.
He fears that the growing influence of far -right AFD can lead Volkswagen to target job cuts outside of Germany, with tens of thousands of Skoda employees as a potential target.
The country hopes that Germany recognizes the importance of its “golden egg” and the deeper partnership which seems to serve the tzechie more than its ally.
Publisher’s note: a version of this article appeared for the first time on Fortune.com on January 21, 2025.
This story was initially presented on Fortune.com
