Czech exports holding course amid a storm of uncertainty

MONETARY POLICY REPORT | SPRING 2025 (box 1)
(authors: Anna Drahozalová, Filip Novotný, Adriana Wałoszková)

The Czech Republic’s product concentration has long been increasing and markedly exceeds the averages for the EU and other advanced countries. Motor vehicles and parts thereof alone accounted for more than one-quarter of Czech goods exports last year. An even bigger share – about one-third of exports – was made up of electrical equipment and machinery. Moreover, in terms of destination, more than half of exports go to just four countries – Germany, Slovakia, Poland and France. This high product and geographical concentration makes the Czech export industry highly vulnerable to changes in demand for only a few product categories from only a few countries. Could Czech foreign trade be at risk in an environment of economic headwinds in Germany, tariff wars and low interest in new cars?

Subdued demand for motor vehicles was already apparent last year, when the number of new registrations on the European market went up by just 0.8% year on year. Moreover, new registrations have been falling since the start of this year. Despite this, Czech motor vehicle exports have shown unprecedented resilience by international standards, and not only last year (see Chart 1). The success of Czech cars on the European market is also indicated by data on new car registrations in Europe, where all Czech carmakers have jumped up a few places since 2019, with two of them even ranking second and fourth in the number of registrations. However, this result may reflect not only the success of the brands as such, but also, for example, greater popularity of the segments that Czech carmakers specialise in. The share of SUVs in total registrations in the EU rose from 38% in 2019 to more than 50% last year, mainly at the expense of luxury, small and multi-purpose vehicles not typically included in Czech producers’ model portfolio. In addition, the impact of lower European demand for motor vehicles has been softened in recent months by higher prices of exported cars. Nominal exports are thus still growing despite lower domestic production.^[1]

Chart 1 – Czech car exports were the only car exports in Europe to record growth last year
passenger car exports from 14 largest global exporters; y-o-y change in %; source: UN Comtrade database, CNB calculations

Note: Data for France and China are not available yet.

The speed and success of the ongoing electric transformation is also making the Czech car industry more competitive. While in 2017 the share of electric cars in total vehicle exports from the Czech Republic was only 0.8%, last year it reached 33% and almost caught up with the average of the 12 largest global car exporters (36%). The fact that the Czech Republic did not miss the boat on joining the electric transformation will play an important role in the future, as data on European registrations reveal the growing popularity of alternative fuel vehicles, whose role will increase further after combustion engines in new cars are banned completely in 2035. Although total European demand for cars dropped by 3% year on year at the start of this year, interest in electric and hybrid cars rose by 28% and 19% respectively. These vehicles together now account for more than half of new registrations in Europe.^[2] In addition, the decline in Tesla’s sales on European markets has created an opportunity for electric car manufacturers. Tesla recorded a dramatic, 49% year-on-year drop in new registrations in the EU in the first two months of this year, and sales data indicate that the decline continued during March.

An expansion of Chinese car brands to European markets and the uncertainty about the potential escalation of trade wars remain risks for the car industry. In this respect, the resilience of the Czech auto industry is also enhanced by several factors: its growing share of the European market, its high level of production localisation (around half of the value added is created in the Czech Republic and the rest mostly in Germany, China and Poland) and its ability to diversify its exports outside the USA market. Moreover, key car brands have long been building up a stable customer base in Europe and Asia.

The shift from carbon-intensive products to low-carbon technology (LCT)^[3] is also yielding benefits in the form of a promising and fast-growing sector with high value added. Diversifying the trade portfolio in favour of LCT is beneficial, as carbon-intensive goods are increasingly subject to regulations, taxes, tariffs and changing consumer demand. As Chart 2 shows, the share of these products in the Czech Republic’s total exports has increased greatly in recent years, reaching the shares of the largest global exporters in this area. The dramatic rise in recent years is due to electrical vehicles and, to a lesser extent, to electric accumulators, engines, generators and other equipment for managing, protecting or distributing electricity. The Czech Republic’s export strength in this segment is also evidenced by the index of revealed comparative advantage (RCA). The RCA index measures the size of a country’s specialisation in the export of a specific product or product category in global comparison. In the case of the Czech Republic, the share of LCT products in exports is 2.3 times higher than the global average.

Chart 2 – The Czech Republic has caught up with the largest low-carbon technology exporters
share of low-carbon products in individual countries’ exports in %; source: UN Comtrade database, CNB calculations

Another vulnerability of Czech exports lies in their high geographical concentration. As almost 30% of total exports go to Germany, weaker performance of the German economy is directly reflected in Czech export growth.^[4] The dependence of Czech exports is additionally increased by its structure, as Germany is the destination for a large proportion of specific intermediate goods that have no alternative market. Any drop in demand for these goods would thus leave very little room for a change in geographical focus.^[5]

However, data suggest that Czech exports suffer less from economic stagnations in Germany than exports from other countries do, as the strong ownership links between Czech and German companies^[6] act as a stabiliser. During crises, German firms tend to reduce their demand for goods from firms they do not own, hence the Czech Republic gains market share in Germany. This increases the Czech Republic’s importance as a supplier to Germany, although from the Czech perspective, a gradual geographical diversification of exports is underway (see Chart 3).^[7] Looking ahead, Czech exports may also be affected by the expected fiscal expansion and lifting of the debt brake in Germany, which would create opportunities for Czech arms producers and sub-contractors. In addition to direct export opportunities, the economy may reflect secondary effects in the form of increased demand for Czech goods due to an overall economic recovery in the region.

Chart 3 – The Czech Republic gains market share in Germany mainly during downturns there
Czech share of German imports in %; Germany’s share of Czech exports in % (right-hand scale); downturns in Germany marked in grey; source: UN Comtrade database, CZSO, CNB calculations

From the perspective of geographical vulnerability, tariff wars currently constitute the greatest uncertainty for Czech foreign trade. The USA is the Czech Republic’s tenth largest export partner, and direct exposure to the USA market is rather low (2.9% of total Czech exports). The latter increases slightly if the domestic value added^[8] of goods shipped to the USA is factored in, but it remains one of the lowest among the countries under review (see Chart 4). However, the effect of a transmitted decline in external demand should not be underestimated, especially given the Czech economy’s close links to global supply chains and high exposures to the USA among its key trading partners, most notably Germany, China and the UK.

Chart 4 – The Czech Republic’s exposure to the USA is low, but secondary effects via its main trading partners persist
direct goods exports to USA and domestic value added of goods contained in USA imports; share in % of individual countries’ total exports; data for 2019; source: TiVA OECD, CNB calculations

Current global developments are clearly having a negative overall effect on Czech goods exports. However, the adverse impacts can be expected to be largely dampened by domestic exporters reorienting towards sectors with bright prospects – such as LCT – and by Czech vehicles becoming increasingly competitive. Paradoxically, the Czech Republic’s dependence on the German economy is reduced by its close ownership links, as intra-company imports are hit less hard by the economic situation. The above factors give cause for cautious optimism about the outlook for Czech exports.

^[1] According to Czech Automotive Industry Association statistics, production dropped by 14% year on year in January and a further 7.8% in February.

^[2] Despite these favourable trends, interest in electric vehicles is not yet sufficient to meet the emission limits requirements. As a result, carmakers recently succeeded in negotiating a change softening the system of penalties for carmakers that fail to comply with emission targets.

^[3] The methodology and the full list of LCT products can be found in Trade in Low Carbon Technology Products, IMF, 2021.

^[4] This topic was discussed in more detail in the box Territorial changes in Czech exports in the Winter 2025 MPR.

^[5] This topic was discussed in more detail in the box The dependence of Czech exports on Germany in the Autumn 2023 MPR.

^[6] In terms of ultimate ownership, Germany is by far the largest investor in Czech markets (21% of all foreign-owned Czech companies).

^[7] By contrast, although the importance of Poland as a trading partner of the Czech Republic is increasing, Czech exports are lagging behind the growth in Polish demand. As a result, the Czech Republic’s market share in Poland has decreased by 3.8% compared to 2019.

^[8] The indicator of domestic value added in USA imports takes into account value created in the Czech Republic and exported indirectly to the USA, for example as part of exports through other countries.