MONETARY POLICY REPORT | SUMMER 2024 (box 1)
(author: Soňa Benecká)
The German economy has been in the doldrums recently. In addition to cyclical factors, it is being held back by structural problems and the search for a new growth model. This box aims to describe the position of Czech exporters in Germany amid the ongoing changes. It attempts to show to what extent they have been successful on the German market over the last two decades, especially by comparison with Polish exporters, which areas they excel in and how they have been hit by the slowdown of the German economy over the last year. The position of exporters is measured by their market share, expressed as the share of imports from individual countries in Germany’s total imports.
In 2023, the Czech Republic ranked seventh among exporters to Germany, accounting for 4.5% of its imports (see Chart 1).[1] As a large yet highly open economy, Germany does not have a single predominant trading partner and the territorial structure of its foreign trade is relatively fragmented. No country except China has a share of more than 10%. The territorial structure of imports has changed over the last two decades, with Germany shifting from traditional trading partners (suppliers) in the EU (France, Italy, the UK) to new suppliers from China and Central Europe. This trend was strong until 2017, when the German engine started to slow. As shown in Chart 1, large changes in the market shares of individual countries were particularly visible in the first ten years following the EU enlargement of 2004. Between 2016 and 2022, the importance of China increased and Poland also became one of the leaders in the ranking of Germany’s main trading partners.
Chart 1 – Germany’s traditional partners, including the Czech Republic, have lost share in total imports and have been overtaken by China and Poland
share of imports from country in Germany’s total imports in selected years in %; countries ranked by import volume in 2023; arrow shows change between 2002 and 2023; source: Destatis, calculation: CNB
The market share of Czech exporters on the German market declined in 2016–2021, unlike that of Polish firms (see Chart 2). The 2022 energy crisis, the rise in prices of imported commodities, the disruptions to production chains and the related problems of the German economy brought about a short-term drop in the market shares of both countries.[2] In 2023, Czech and especially Polish exporters increased their share of the German market again. The share of Polish exporters more than doubled compared with the start of the millennium. Besides factors such as a better supply chain situation, part of their success can be put down to the energy crisis in Germany. According to media reports, many firms with energy-intensive production restricted their activities or moved them abroad (e.g. BASF, ThyssenKrupp), while some even stopped producing (e.g. Vallourec). They thus made room on the market for foreign suppliers, such as Polish and Czech firms. This is confirmed by a rising number of insolvency petitions in manufacturing since the start of 2023.[3]
Chart 2 – The Czech Republic’s share of the German market was falling from 2016 until recently, while Polish exporters gained market share (except in 2022)
share of Czech Republic and Poland in Germany’s total imports in %; source: Destatis, calculation: CNB
However, Germany is also having to adapt to the unstable global geopolitical situation. It is therefore increasing its trade with the USA and trying to move away from trading with China and make itself less reliant on imports of crucial intermediate goods from China.[4] Dependence on imports from a country can be identified as potentially significant if its share in imports to the destination country exceeds 50% in some goods categories. In 2023, almost 5% of the goods categories of German imports from China met this definition (see Chart 3).[5] Even if the threshold for German dependence on imports from China is moved to 75%, the resulting more than 1% of goods categories in which imports from China predominate is still telling. These include, for example, some chemicals and electronic components. From this point of view, only a small proportion of imports from the Czech Republic and Poland are similarly important for Germany. In the case of Czech Republic, they include some types of meat and fodder, chemicals, and components for the textile industry. By contrast, many items exported to Germany are highly specific from the Czech perspective.[6]
Chart 3 – Germany is heavily reliant on imports from China
share of goods categories of potentially significant imports in total number of categories of German imports in 2023 in %; source: Destatis, calculation: CNB
The current positions of Czech and Polish exporters differ. Czech exports are still concentrated in sectors where they gained their position at the start of the millennium. These include electrical and mechanical machinery and parts thereof, motor vehicles and parts thereof, and metal products (see Chart 4). Czech producers are succeeding in maintaining their market share in most of these sectors. Moreover, the weight of these three key sectors has risen significantly over recent decades, fostering even narrower specialisation of Czech exports to Germany. Exports of electrical and mechanical machinery and equipment and products of the automotive industry together accounted for almost 60% of Czech exports to Germany in 2023, as against almost 10 pp less at the start of the millennium. The diversity of the products/goods categories exported has therefore declined. The story with Polish exports to Germany is the opposite. They were dominated by furniture at the start of the millennium. Over the last ten years, however, Polish exporters have been successful across a whole range of products, including the sectors predominant in Czech exports. Polish exports to Germany have thus diversified. In some segments, such as parts for the automotive industry and metal products, the shares of the two countries on the German market are now similar. Polish exports are thus strong competition for Czech exporters.[7]
Chart 4 – Imports from the Czech Republic to Germany are concentrated in traditional sectors; German imports from Poland are conversely increasing in diversity
market shares in % by sector in German imports in given segment; weighted by sector’s share in exports from Czech Republic and Poland to Germany; source: Eurostat, calculation: CNB
Czech Republic
Poland
The activity of Polish exporters is illustrated by the fact that they have gained market share in one of the fastest growing items to do with sustainability. They now hold a market share of over 25% in the “electric accumulators” subcategory. Hungarian firms have been similarly active. In the past, battery trade was dominated by Chinese imports. In the case of the Czech Republic, the rise in market share, if any, has been evenly concentrated in traditional sectors.
The German economy has been experiencing many problems for several years in a row. The search for a new growth model will be difficult for Germany and its main trading partners. The growth engine of the Czech economy – exports of traditional products to Germany – is thus at risk. So far, Czech exporters have maintained a solid position amid Germany’s switch to a new growth strategy, as documented above. However, their links with traditional German industry, our common focus on energy-intensive sectors and the limited ability of our firms to react to new demand segments may keep Czech producers and suppliers at the low stages of the European and German value chains.
[1] Exports from the Czech Republic to Germany make up almost one-third of total Czech exports. The same is approximately true for Poland. The shares of Slovakia and Hungary are somewhat lower but still exceed 20%.
[2] Adjusted for the sharp increase in prices of imported energy commodities, the drop in the Czech and Polish shares would be less pronounced. Nevertheless, the stagnation of the German economy, including supply chain disruptions, was reflected in Germany’s trade with the Czech Republic and Poland. In addition, German exporters have been hit by a loss of market share in Russia and Ukraine.
[3] Unfortunately there is no up-to-date sectoral breakdown available for insolvencies in Germany, but companies in energy-intensive sectors such as manufacture of metals have historically accounted for a large proportion of insolvencies in Germany.
[4] See, for example, the German government’s 2023 Strategy on China, the Bundesbank’s September 2023 Germany as a business location: Selected aspects of current dependencies and medium-term challenges and IW’s April 2024 Import side; De-risking China in 2023: An anatomy of high German import dependencies on China.
[5] The German Institut der deutschen Wirtschaft (IW) regularly comments on potentially critical dependence on imports from China. The analyses suggest that there is only limited room for replacing imports from China with supplies from European countries.
[6] The box The dependence of Czech exports on Germany in the Autumn 2023 MPR discusses Czech exports to Germany in more detail.
[7] On the other hand, the Czech Republic is also benefiting from Poland’s expansion, as the share of Czech exports to our Northern neighbour in our total exports rose from 6% at the start of 2020 to 8% in January 2024.