Czech, Slovak Economies Take Hit From Carmakers’ Covid Woes

Heavily dependent on car production, the Czech and Slovak economies are set to take a blow this year as the Covid-19 pandemic has crimped imports of chips from Asia.

Local producers had expected a recovery after the coronavirus forced suspensions in 2020, but their plans were marred by intermittent closures at semiconductor production centres.

Made largely in Asia, semiconductors are a key component in both conventional and electric vehicles.

The shortage wreaked havoc on the two countries that were Czechoslovakia until a peaceful split in 1993, and which are home to a total of seven large car plants.

“The problems in the car industry slashed our GDP growth (for 2021) by 1.1 percentage points,” Helena Horska, an analyst at Raiffeisenbank in Prague, told AFP.

The Czech National Bank now predicts annual GDP growth of 1.9 percent for 2021, down from a 3.5-percent forecast in August.

Slovakia’s central bank has revised its 2021 GDP growth forecast down to 3.1 percent for this year as the car industry woes were expected to shave 1.8 points off the growth.

Car production makes up 41 percent of industrial output in Slovakia Photo: AFP / VLADIMIR SIMICEK

Car production makes up 10 percent of gross domestic product (GDP) and 26 percent of industrial output in the Czech Republic, and 15 and 41 percent, respectively, in Slovakia.

Marek Jancak, production head at Czech-based Skoda Auto which is a unit of German giant Volkswagen, said the shortage of chips was “a problem of 2021”.

“It came out of the blue, that’s why the impact is so harsh,” he told AFP.

“There were times when we suspended production for weeks, and now we are going at a reduced pace,” Jancak added.

The three Czech car plants, also including South Korea’s Hyundai and Japan’s Toyota, produced 1.02 million cars in January-November this year.

This means the full-year figure will be way below the record-high 1,427,563 units produced in 2019.

The three Czech car plants produced just 1.02 million cars in January-November this year The three Czech car plants produced just 1.02 million cars in January-November this year Photo: AFP / Michal Cizek

The situation in Slovakia, home to Volkswagen, KIA, PSA Peugeot Citroen and Jaguar Land Rover plants, is similar.

“Early in 2021, we expected output to return above a million cars after a 10.6-percent slump in 2020 from the record year 2019,” said Jan Pribula, general secretary of the Slovak Automotive Industry Association.

“But 2021 has brought several challenges which have made us rethink the forecast,” he told AFP, adding he now expected output just above 900,000 cars.

“We have vaccines and probably also efficient medicine to tackle the pandemic,” he added.

But “finding the medicine to cure a shortage in chips and materials supplies… is a longer and more expensive process.”

The central banks as well as experts have agreed the shortage of semiconductors would last until the middle of 2022.

“It seems that we are past the worst,” said analyst Horska.

“When there are supplies, we will produce, when they stop, we will not, and the situation will calm down in the second half of the year.”

Horska said many companies would keep higher stocks than before Covid after learning their lesson.

Jancak, from Skoda Auto, said Volkswagen has introduced measures to boost logistics and ensure a smoother inflow of components.

He said he hoped this would start bearing fruit in the second half of next year.

The Czech central bank expects the economy to recover with 3.5-percent GDP growth next year, while Slovakia’s central bank predicts 5.8-percent growth.

“The high share of the car industry makes our economy more vulnerable to a shortage of key components, compared with other countries,” Slovakia’s central bank said in its latest forecast.

“In the years to come, however, car exports should pull the economy as we also expect partial recouping of the production losses.”