Czech and Polish exporters are caught up in Germany’s troubles

Germany is the largest trading partner for many central and eastern European Union states; nations like Czechia, Slovakia and Poland have embedded themselves in their larger neighbor's supply chains. That has made them vulnerable as Germany's manufacturers struggle.

We've charted the central and eastern European EU member states (the "CEE 11"), ranking them by their reliance on Germany as an export market in the first half of 2024. Czechia and Poland top the list, sending roughly 32% and 27% of their exports, respectively, to Europe's largest economy. Eight of these countries send more than 10% of their exports to Germany.

The annual growth rate of combined CEE-11 exports to Germany has been slowing since mid-2022, as our second chart shows; that tipped into outright shrinkage from late 2023. According to the latest available data for all CEE 11 economies (June 2024), their aggregate exports to Germany dropped at a 7.7% year-on-year pace.

The recent period is in sharp contrast to the "golden decade" for the German economic model and its near-shored suppliers: from about 2013-19 -- the middle portion of our chart -- the growth rate of CEE-11 exports to Germany was remarkably steady.

As we wrote last week, German manufacturers and corporate profits have been hurt by trade tensions, the loss of cheap Russian energy and slumping export markets. Germany's economy fell into contraction in the third quarter of 2023; ever since then, German real GDP has been declining on an annualized basis. Meanwhile, business confidence fell for a fourth straight month in September. (In the third quarter of this year, the German economy probably contracted yet again, according to Now-Casting Economics.)

This week, we've added two more charts examining this slump. They don't paint an optimistic picture for the near future.

German manufacturing capacity utilization plunged to 77.4% in the third quarter -- the lowest level since the pandemic. This indicator has been following a downward path since September 2022.

Industrial production, meanwhile, has also been in negative territory for over a year. Our heat map shows how the weakness since 2021 is broad-based among most sub-sectors; the only categories to post annualized growth in August 2024 were energy and motor-vehicle production.

If you are a CEIC user, access the story here.