Europe's silent champion: Why the Czech economy surprises everyone – Economic boom in Europe's industrial wonderland

The secret behind the Czech Republic's rise to automotive superpower

At the heart of Europe beats a powerful industrial engine, currently running louder and more reliably than many others on the continent: the Czech Republic. While major European economies are stagnating, the country is experiencing a remarkable boom, most evident in its flagship sector, automobile production. With historic production records, economic growth twice the EU average, and an enviably low unemployment rate, the Czech Republic has positioned itself as a true industrial wonderland. Supported by sound fiscal management and a centuries-old industrial tradition, the country appears to be well-equipped for the future.

But behind this shiny facade lie profound structural challenges. The country's enormous dependence on the weakening German economy is increasingly proving to be its Achilles heel, while domestically declining investment and a growing shortage of skilled workers are jeopardizing its long-term competitiveness. The country is thus at a crucial turning point: Will it succeed in diversifying its economic structure, making the leap to higher value creation, and adapting its education system to the demands of the future? This text sheds light on the Czech Republic's impressive success story, analyzes the fundamental strengths of players like Skoda and Hyundai, and takes a critical look at the risks and strategic decisions that will determine the future of the Central European economic engine.

What makes the Czech economy so successful at the moment?

The Czech economy is currently experiencing a remarkable period of growth, which is particularly evident in automobile production. In 2024, the Czech Republic was the only country in Europe to record an increase in automobile production, while other regions experienced a significant decline. Production reached a historic record of 1,452,881 passenger cars in 2024, representing an increase of 3.9 percent compared to 2023.

The success of the Czech economy is based on several structural factors. The economy is currently growing at around 2 percent, twice the EU average. At the same time, the country enjoys virtually full employment, with the unemployment rate of 2.5 to 3.5 percent, among the lowest in the entire European Union.

Particularly noteworthy is that the Czech Republic also enjoys a solid position in terms of public finances. National debt is approximately 43 percent of gross domestic product, well below the EU average of 83 percent. This fiscal stability gives the government room for maneuver that many other European countries lack.

What are the historical foundations of the Czech Republic’s industrial strength?

The Czech Republic's industrial tradition stretches back to the time of the Habsburg Monarchy. The country can look back on almost 120 years of experience in automobile manufacturing, particularly through its own Skoda brand, which was originally founded as a mechanical engineering company in 1859. This long tradition has laid the foundation for the highly trained engineers who today form the backbone of Czech industry.

Christian Rühmkorf of the German-Czech Chamber of Industry and Commerce emphasizes this historical dimension: "The Czech Republic is a very traditional industrial country. This actually dates back to the Habsburg era. But the automotive industry is enormously important. The Czech Republic has truly excellently trained engineers."

Today, the automotive industry accounts for approximately 10 percent of gross domestic product and accounts for around 20 percent of all exports. The sector employs over 200,000 people, which corresponds to approximately 3.7 percent of total employment. These figures underscore the central importance of the automotive industry to the entire Czech economy.

Who are the key players in the Czech automotive industry?

The Czech automotive landscape is dominated by three major international manufacturers. Skoda Auto is the largest domestic car manufacturer, accounting for 61.7 percent of total passenger car production in the Czech Republic. In 2024, Skoda produced a total of 896,933 vehicles at its Czech plants, an increase of 3.7 percent.

Hyundai Motor Manufacturing Czech in Nošovice is the second-largest producer, producing a total of 330,890 vehicles in 2024. Although this represents a 2.8 percent decrease compared to 2023, Hyundai accounts for 22.8 percent of total passenger car production in the Czech Republic. The South Korean company is particularly heavily involved in electric vehicles, which account for 16.5 percent of total brand production.

Toyota Motor Manufacturing in Kolín completes the trio of major automakers. In 2024, 225,058 vehicles were assembled there, an increase of 32,631 vehicles, or 17 percent, compared to 2023. Toyota accounts for 15.5 percent of total passenger car production in the Czech Republic, with half of the production consisting of the Yaris HEV hybrid model.

In addition to these three main players, all major automotive suppliers are also present in the Czech Republic, often with multiple plants. This dense supplier landscape contributes significantly to value creation in the country and makes the Czech Republic an integral part of European automotive production.

How dependent is the Czech Republic on Germany?

Dependence on Germany represents one of the greatest structural challenges for the Czech economy. Around one-third of all Czech exports go to the western neighbor. Germany has been by far the Czech Republic's most important trading partner for many years – in 2023, goods worth €77.8 billion went to Germany, corresponding to about one-third of the total export volume.

This close economic ties brings with it both opportunities and risks. Gerit Schulze of Germany Trade and Invest sums it up: "The Czech economy always says: If Germany has a cold, the Czech economy will get the flu." The weak German economy is therefore also slowing down the Czech Republic, even though the country itself is in better economic shape.

Exports of food, vehicles and parts, and electrical engineering to Germany are particularly affected. Electrical engineering shipments increased by 17.5 percent to €10.7 billion in 2023, while exports of automotive parts increased by 17.6 percent to €7.6 billion. These figures illustrate how closely the Czech supplier industry is linked to the German automotive industry.

The high dependence on Germany is also reflected in the fact that goods worth almost 98 billion euros were exchanged between Germany and the Czech Republic in 2019, corresponding to approximately 29 percent of the total Czech foreign trade volume. Due to its strong supplier industry, the Czech Republic is even one of the few countries with a negative trade balance with Germany, meaning that more goods are imported to Germany than exported to the Czech Republic.

What strategies does the Czech Republic pursue to diversify its export markets?

To reduce its heavy dependence on Germany, the Czech Republic has been trying to tap into new markets, particularly in Asia, for some time. This diversification strategy is already showing initial success in various regions. Exports to France, Hungary, Romania, and the United Kingdom saw significant increases of between 7 and 9 percent in 2023. Deliveries to Turkey, with an increase of 31 percent, and to Ukraine, with an increase of 28 percent, developed even more dynamically.

The expansion into Asia is particularly interesting, with Skoda taking a pioneering role. The company has successfully entered markets in Vietnam and India. Skoda began its market entry in Vietnam in 2023 and plans to expand its dealer network to 30 partners, with annual sales potential of over 40,000 units after 2030. The first models will be imported from Europe, but local CKD production is scheduled to begin as early as 2024, leveraging synergies with the Indian plant.

India has become a central component of Skoda's internationalization strategy. Approximately 50 percent of Škoda vehicles manufactured outside the Czech Republic come from India. In 2023, the Group sold just over 101,000 cars built in India, of which 44,000 were exported. India serves not only as a sales market but also as an export base for other countries in the region.

China remains Skoda's largest single market outside of Europe. China has been the Czech automaker's largest single market worldwide for nine years now; one in four Skoda vehicles is currently delivered in China. In 2018, sales increased by 4.9 percent to 341,000 vehicles, one-third of which were SUV models.

How does the wage situation in the Czech Republic compare with the EU?

The wage situation in the Czech Republic presents a diverse picture, with significant progress but still significant differences compared to Western European levels. The average wage in the first quarter of 2025 was 47,000 Czech crowns, equivalent to approximately 1,870 euros. However, this figure is not very meaningful due to a large wage gap, which is why the median wage of 38,400 crowns or 1,530 euros provides a more realistic picture.

In 2023, the average gross income was over 43,000 crowns, or approximately 1,700 euros. This means that people in the Czech Republic still earn significantly less than their Western European neighbors compared to the rest of the EU. The Czech wage level is currently about 60 percent of the German level.

The regional differences are particularly evident within the Czech Republic. In Prague, the monthly gross income is €1,395, while in Central Bohemia it is €1,220 and in South Bohemia only €1,085. These regional disparities reflect the differing economic strengths of the regions.

However, the government expects significant real wage increases in the coming years, amounting to 4.1 percent in 2025 and 3.1 percent in 2026. By 2026 at the latest, the average wage is expected to exceed 50,000 Czech crowns or €2,000. Prime Minister Petr Fiala has even set the ambitious goal of achieving wages similar to those in Germany in the medium term.

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Which structural problems weaken the Czech Republic's competitiveness?

Despite positive economic development, the Czech Republic is struggling with significant structural problems that threaten its long-term competitiveness. The most serious problem is declining investment. Christian Rühmkorf sees a worrying trend here: "Investment has been declining for years. A full 43 percent of industrial companies plan to invest less in 2025. And that, of course, jeopardizes long-term competitiveness."

Another critical problem is the shortage of skilled workers, which is worsening not only quantitatively but also qualitatively. Until 2021, employee qualifications were one of the positive location factors in the Czech Republic, ranking 6th out of 25, but they have now slipped to 19th place. The problem is not that training has deteriorated, but rather that the demands of companies have increased enormously due to digitalization and artificial intelligence, and neither the people nor the training system can keep up.

Bernard Bauer, executive director of the German Institute of Industry and Commerce (DTIHK), warns: "The Czech vocational training system does not yet have an answer to this, even though the qualifications of our employees determine the innovative strength of our location." Sixty-one percent of the companies surveyed see the shortage of skilled workers as the greatest obstacle to innovation.

In a regional comparison of Central and Eastern European investment locations, Poland now ranks ahead of the Czech Republic. Investors ranked Poland first, followed by the Czech Republic in second place, followed by Slovakia, Romania, Hungary, and Bulgaria. Decisive factors in the evaluation were lower production costs, better infrastructure, and better access to skilled workers in Poland.

How do the Czech Republic’s public finances compare with other European countries?

The Czech Republic enjoys a remarkably solid position in terms of public finances, clearly above the European average. Prime Minister Petr Fiala announced at the beginning of 2025 that his government had succeeded in reducing the Czech budget deficit from over five percent of gross domestic product to below three percent. The deficit is expected to be only 2.3 percent in 2025.

National debt is around 43 percent of gross domestic product, significantly below the EU average. Before the outbreak of the coronavirus pandemic, it was only 30 percent. Although the special spending to rescue domestic companies and the additional costs of energy subsidies resulting from the war in Ukraine have burdened public finances, the Czech Republic is still doing very well compared to other European countries.

According to the European Commission's autumn forecast, public debt in EU countries will average 83 percent in 2024. The Czech Republic is thus about 40 percentage points below this average. This solid financial position gives the government room for maneuver that many other European countries lack.

Particularly noteworthy is that, despite the budget consolidation, the Czech Republic has simultaneously significantly increased defense spending and fulfilled its NATO commitments. This puts the country at the top of the four Visegrad countries and even performs significantly better than neighboring Austria.

What political changes are emerging?

The Czech political landscape is facing significant changes. The parliamentary elections in October 2025 clearly indicated a change of government. The right-wing populist ANO party, led by former Prime Minister and entrepreneur Andrej Babis, was clearly ahead in the polls, receiving approximately 38 percent of the vote.

According to forecasts, the center-right Spolu (Together) alliance of incumbent Prime Minister Petr Fiala only achieved around 20 percent, while the previously governing mayoral party STAN achieved just under 11 percent. The current governing coalition would thus lose its majority in the Chamber of Deputies.

During the election campaign, Babis announced an end to arms deliveries to Ukraine and promised lower taxes and cheaper energy prices. The governing coalition, however, warned of threats from Russia and announced a gradual increase in defense spending.

Despite the emerging political changes, experts do not expect any fundamental economic policy upheavals. Christian Rühmkorf of the German-Czech Chamber of Industry and Commerce emphasizes: "Fundamentally, there is a broad consensus in the Czech Republic for open markets, EU integration, and investment-friendliness, and this is unlikely to change much."

How is electromobility developing in the Czech Republic?

Electromobility is gaining increasing importance in the Czech Republic, even though it still accounts for a relatively small share of total production. A total of 151,162 electric vehicles were produced in 2024, corresponding to 10.4 percent of total production. From January to December, electric vehicles already accounted for a considerable share of Czech automobile production.

Skoda Auto produced a total of 96,534 electric vehicles in 2024, accounting for 10.8 percent of the company's total production. These included 79,932 pure electric vehicles and 16,602 plug-in hybrids. Hyundai in Nošovice even achieved an electric vehicle share of 16.5 percent of total brand production, with 33,300 pure electric vehicles and 21,328 plug-in hybrids.

Toyota is planning a significant expansion of its electric car production in Europe. The plant in Kolín will produce battery-electric vehicles for the European market for the first time. Toyota is investing approximately €680 million in expanding its Czech presence, creating approximately 173,000 square meters of new production space, including new body, paint, and assembly lines, as well as its own battery production facility.

Skoda plans to launch further fully electric models in the future, including the city-friendly Epiq crossover and a large battery-electric family SUV based on the Škoda Vision 7S concept car. This development demonstrates that the Czech Republic is ready to help shape the transition to electromobility while maintaining its position as a key automotive location.

What role does tourism play in the Czech economy?

Tourism is an important economic sector for the Czech Republic, even if it does not reach the dominant role of the automotive industry. Most visitors come from Germany, followed by Slovakia, Poland, China, and the United States. A total of 21 million tourists visited the Czech Republic in 2018. This number declined due to the coronavirus crisis, but was almost reached again in 2022, with 19.5 million visitors, of which 7.3 million were foreign guests.

Germany is also the most important partner in tourism, with around 1.2 million visitors to the Czech Republic in 2019. Its geographical proximity to Germany and Austria makes the Czech Republic an attractive destination for day trips and weekend getaways.

The tourism sector is part of the services sector, which accounts for 60 percent of Czech economic output. In addition to tourism, this includes finance, trade, hospitality, and telecommunications. This diversification of the economic structure demonstrates that the Czech Republic is not exclusively dependent on industry, even though it is the mainstay.

How does the Czech Republic position itself in global supply chains?

The Czech Republic has developed into an important hub in global supply chains, particularly in the automotive industry. Czech manufacturers are strongly integrated into global value chains, with particularly close ties to German value chains. This applies particularly to automotive parts, machine components, electronics, and metal goods.

Many Czech intermediate products are incorporated into German end products, which are then shipped to the US or other markets. This close integration means that additional US tariffs could have significant indirect effects on the Czech economy. The Czech Republic's dependence on German supply chains makes it particularly vulnerable to disruptions in its most important partner country.

At the same time, the Czech Republic is diversifying its international economic relations. The US market already plays an above-average role for certain product groups. These include opium alkaloids and their derivatives, with a 90 percent US share of exports; parts for turbojet or propeller engines, with a 57 percent US share; and revolvers and pistols, with a 45 percent US share.

Local value creation is considerable: Toyota sources approximately two-thirds of its components domestically. This high proportion of local supplies strengthens the Czech economy and creates jobs along the entire supply chain.

What long-term challenges lie ahead?

The Czech Republic faces several structural challenges that will impact its long-term competitiveness. The most important task is the transition to higher value creation. Industry Minister Lukáš Vlček pointed out that the Czech economic model has reached its limits. More value creation requires more investment in human capital and infrastructure.

The government has set itself the ambitious goal of being among the top ten EU countries in terms of GDP per capita by 2040. By implementing the new strategy, the government aims to achieve long-term, sustainable growth, increase competitiveness, and generate more prosperity.

A key challenge remains the modernization of the education system. The rapid development of digitalization and artificial intelligence is placing entirely new demands on the qualifications of the workforce. The Czech vocational education and training system must urgently find answers to these challenges in order to maintain the innovative strength of the country.

Diversifying the economic structure remains another important task. Although the automotive industry is currently successful, the strong concentration on one sector poses risks. The development of other industries, such as the defense industry, which is already experiencing considerable growth, could contribute to diversification.

Ultimately, the Czech Republic must strike a balance between its close ties with Germany and the necessary diversification of its export markets. The successful development of Asian markets demonstrates that the country is on the right track, but this process must be consistently pursued to reduce dependence on a single major partner.

Czech Republic's position as an industrial wonderland

Over the past two decades, the Czech Republic has developed into an impressive industrial wonderland in the heart of Europe. The figures speak for themselves: record production in the automotive industry, low economic growth twice as high as the EU average, full employment, and solid public finances. This success story is based on a centuries-old industrial tradition, a highly trained workforce, and a strategically advantageous location in the heart of Europe.

Nevertheless, the country faces significant challenges. Its extreme dependence on Germany makes the Czech economy vulnerable to external shocks. Declining investment and the worsening shortage of skilled workers threaten long-term competitiveness. The need to shift to higher value creation and diversify the economic structure will be crucial in the coming years.

The successful development of Asian markets by companies like Skoda demonstrates that the Czech Republic is certainly capable of breaking new ground. The development of electromobility and investments in new technologies give hope that the country will also master the transition to Industry 4.0.

Political changes are imminent, but the broad consensus for open markets, EU integration, and investment-friendliness is likely to persist. The Czech Republic thus remains an industrial wonderland in the heart of Europe – with great opportunities, but also with areas of work to be addressed in the coming years. Success will depend on whether the country succeeds in overcoming its structural challenges while simultaneously further building on its strengths.

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