There is a shadow hanging over Europe. Donald Trump’s climb to the White House exposed the raises of preparing in the continent’s economy and military power. It was not obviously anywhere more than in Germany, the industrial plant is withdrawing from two years of negative growth.
Now, Germany’s allies, who have lived in their own shadow of the largest economy in Europe, remain to face questions about their own survival. It is most obvious to its neighbor in the east: the Czech Republic.
Within the $ 348 billion Volkswagen giant group lies a skilled, quiet success story of the Czech Republic that tells how much about the country’s post-cold war, as well as its long-term risks.
The Czech Republic, also known as Czechia, has built his post-cold military economy in the same way as Germany has made the post-reconciliation: with the focus on the industry. Production, as part of GDP, has been floating over 20% in the country for the last 30 years, and has joined Germany in burying the western trend of de -industrialization.
One -third of Czechia’s exports go to Germany, while 20% of his import comes from the nearest neighbor.
Links between the Czech Republic and Germany are the best exemplary of the Czech Republic, owned by the largest German company Volkswagen.
The strength of the skod
Skoda makes up a significant portion of the Volkswagen massive group, which also contains Audi, Seat, Porsche and the Volkswagen brand itself.
A car provider reached revenue of 26.5 billion euros in 2023, a massive increase of 26% in 2022 and equivalent to almost 10% of the Chechk economy.
If it were an independent company, it would be ranked in the top 150 of the Fortune 500 Europe, as one of the top 10 carmakers, and far from the largest Czech company on the list.
The carmaker has also not descended in recent years as his colleagues carmakers under Volkswagen’s umbrella. In the first nine months of 2024, Skoda increased operating profit by almost 35% compared to the same period in 2023, while the Volkswagen group faced a 10% drop in profit.
The group’s profit margin in the first nine months of 824 of 8.3%also puts it among the most profitable brands across Volkswagen and far above the margin of the collective group of 5.6%.
It is, according to David Havrlant, Czech chief economist in Ing, the “Golden Egg” within the Volkswagen group, he told Wealth.
The sales of the carmaker is overly focused on Europe. About nine out of 10 of her cars were delivered to Europe in 2023, and the rest went to Asia-Pacific. This seems to have protected the manufacturer from the fall of sales that Volkswagen has experienced, which has built its dominance on the Chinese consumer market of China, which has passed in the opposite direction in recent years.
Indeed, by 2024, Skoda increased its deliveries by 6.9%, compared to the decline of 1.4% of the Volkswagen brand, which reflects nearly 10% reduction in China’s deliveries last year.
That divergence from Volkswagen speaks more widely of divergence between Czechia and Germany.
The Czech Republic, along with Germany, fought by 2024, with GDP reduced by 0.3% ahead of sanctions on Russian energy.
However, the country is expected to return faster than its partner in the West, with 2.3% growth projections in 2025, almost triple -projected growth of Germany by 0.8%, according to the International Monetary Fund (IMF) forecasts.
The Czech economy has proven to be more attractive to business entities seeking to expand their feet. Salaries in the country, for example, are about half of what are in Germany, reducing entry costs.
Its wider population seems more content.
“I would say that the Czech consumer is less depressed than the German consumer,” said Anna Boada, head of economic research in Allianz, for trade in Allianz, for trade in Allianz Wealth.
Domestic demand is expected to be a major driver of Czech GDP growth this year as a reflection of that greater consumer confidence.
But the seemingly unrelenting bonds between Czechia and Germany continue to endanger the country’s economy.
Obstacles to Czechia
The production of the production of Czechia moved into conclusion with Germany, after the fall of the second began in 2022. The PMI of both countries has been on the territory of contractions for nearly three years, as producers have been struggling with higher energy costs and falling demand, causing the effects of knocking out producers downstream.
Ladislav Tiel, a lecturer at the University of Economics and Business in Prague, notes that among the manufacturers and companies in the supply chain, the automotive sector in Czechia represents about half a million jobs.
“So frankly, if something goes wrong … they are out of work and this country can technically fail,” Til told Wealth.
Both countries are struggling to fall into investment, creating a barrier to future growth.
“It’s really not good for those economies and that doesn’t signal anything good for the coming years,” Til said.
One of the primary concerns of Cesia for its production-heavy economy is the oppressive goals of the climate. The country joined Italy last November in a call for relaxation of EU climate rules This will lead to a ban on selling carbon vehicles by 2035.
Allianz Boada says 2025 is a year of transition for carmakers and economies that occupy them. On the one hand, they will need to increase their production of electric and hybrid vehicles to comply with environmental regulations. On the other hand, this means getting into much more competitive markets surrounded by cheap Chinese competitors.
“This will also mean a certain impact on the turnover of those Czech suppliers who are basically interconnected by German carmakers, not only volume but also at a price,” Boada said.
Ing Harlant writes widely for the Czech economy. He says there are four stages of a structural crisis that has to go through the country before policy makers can step.
“You have to recognize that there is a problem. Second, you have to admit that it is your problem. Third, you have to force yourself to overcome that you want to do something about it. And fourth, you are doing something about it.”
The Czech Republic is somewhere in front of phase three and four when it comes to its automotive sector, Havrant says, while he thinks Germany is stuck in the point of zult.
As a result, Havrant believes the Czech economy is slowly separating from Germany.
“Their orders books have been bad for so long that so far, it has always been enough to wait until things get better, but that’s not the case anymore,” Havatlant told Czechia and Germany.
PoliticalAl
The political story in Czechia is the same as in Germany and increasingly, over the rest of Europe.
As in Germany, elections are called in 2025 and has a similar populist vote in both countries.
Among the alternative to Deutschland (AFD) in Germany, the national rally in France, Italy’s brothers in Italy and reforms in the UK, Europe’s largest economies are distressed with increased support for extremely right -wing political parties ready to upset the status quo.
Thus, followed by similar jigsavas for Europe, rebels of the SEZ Populist Party tried to get the elections later in 2025.
Til says the potential victory of the patriots for Europe would probably have a positive impact.
Instead, Germany’s elections in Germany pose a more risk to Czechia’s economy.
He cares that the increase in the impact of the far -right AFD could cause Volkswagen to target job cuts outside Germany, with tens of thousands of Skoda employees a potential goal.
The country will hope that Germany recognizes the importance of its “golden egg” and the deeper partnership that seems to serve Czechia more than her ally.
Editor’s note: A version of this article first appeared on Fortune.com on January 21, 2025.
This story was originally shown on Fortune.com
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