War in Ukraine upends post-COVID automotive renaissance in Central Europe, Auto News, ET Auto

Production disruptions will take their toll, with the Czech auto industry accounting for around a quarter of industrial output and exports. In Hungary, the automotive sector accounts for 28% of industrial exports.

By Jason Hovet and Gergely Szakacs

Prague: Russia’s invasion of Ukraine is undermining hopes that Central Europe’s auto industry will resume growth this year after the pandemic, fueling risks of deeper economic downturns.

The conflict in Ukraine has aggravated supply difficulties and is also pushing up the prices of materials like nickel or palladium, which will put more pressure on the automotive sector worldwide. Soaring energy costs are also seeping into supply chains.

The pain will be particularly felt in Central Europe, where the sector plays an important role and where some disruptions have already been seen since Russia invaded Ukraine on February 24.

Volkswagen has temporarily suspended production at two factories in Poland.

Another VW unit, Skoda Auto, which is the Czech Republic’s biggest exporter, has halted production of its ENYAQ iV electric model and warned that production of other models is also at risk due to unavailability of harnesses of key cables from Ukraine.

Production disruptions will take their toll, with the Czech auto industry accounting for around a quarter of industrial output and exports. In Hungary, the automotive sector accounts for 28% of industrial exports.

Deutsche Bank strategist Christian Wietoska estimated in a March 11 note that every week of complete disruption to car production – something seen when factories closed at the start of the coronavirus pandemic in 2020 – subtracted about 0.1 percentage points from gross domestic product in the Czech Republic or Hungary. , more than in Poland or Romania.

Further disruptions could limit Czech car production at least until the second quarter, said Jiri Polansky, an economist at Erste Group Bank’s Czech unit.

“This year could be difficult for the Czech economy, at least for the first half of it, and the automotive sector will be one of the most negative sectors,” he said.

Economies in the region recorded strong recoveries in 2021, but faced headwinds this year as high inflation began to dampen growth.

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While analysts say forecasts of the full impact on the auto sector are still difficult to assess with high uncertainties, there are clear signs that the conflict will hurt economies as industrial production is affected and even higher inflation puts a brake on consumer spending or business investment.

Czech National Bank Governor Jiri Rusnok told Czech radio on March 9 that there would “definitely” be a slowdown. The bank previously forecast GDP to rise 3% this year from 3.3% in 2021.

Hungarian central bank deputy governor Barnabas Virag said this week that the war in Ukraine created downside risks to economic growth.

The most recent shock comes after two lean years for the Central European automotive sector, first with factory closures in 2020. Global chip shortages have dampened production since last year, the sector Czech producing up to 300,000 fewer cars than expected last year because of this.

Czech industry body AutoSAP said this week that a third of Czech companies are already reporting a shortage of materials or components due to the conflict in Ukraine.

It had previously forecast a return to growth this year, but AutoSAP chief executive Zdenek Petzl said reaching production levels of 1.1 million cars in 2021 would be a success.

“The impact will be huge,” he told Reuters. “It’s amazing that businesses have weathered the storm of the past two years. But now one wonders what will happen next.”

In Romania, the economy minister has set up a task force to prepare for the fallout in key industrial segments, such as the automotive sector which is facing supply shortages for certain parts.

Peter Virovacz, an economist at ING in Budapest, said the drop in Hungarian output could be only half of that seen in 2020, but the recovery would be much slower.

“The automotive sector will not be able to drive economic growth to the extent that we would have seen without the war,” he said.

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According to AutoSAP, according to a survey of companies, more than one-fifth of companies had to solve logistical problems caused by the conflict.

The automotive sector is unlikely to get any respite from the current shortage of semiconductors. Indeed, Russia and Ukraine produce 75% of the neon gas used to manufacture semiconductors. Protracted conflict and sanctions against Russia would further reduce semiconductor production. Dependence on imports of palladium and platinum, which are used in catalytic converters, and nickel, which is used as a cathode in lithium-ion batteries, is relatively low and therefore can only have a minimal impact on the sector automotive,” Crisil said.