The Czech Republic, and its quiet customers of Skoda cars, deceive an economic contraction that reveals in its crucial ally Germany.

There is a shadow hanging over Europe. Donald Trump’s rise to the White House revealed the fragility of fermentation within the continent’s economy and military ingenuity. This was not clear anywhere more than it was in Germany, where the industrial power decreases from two years of negative growth.

Now, Germany’s allies, who have lived in their shadow of the largest economy in Europe, leaves questions about their survival. This is the most obvious in its neighbor to the east: the Czech Republic.

Within the Volkswagen group of $ 348 billion, Skoda is a quiet success story for the Czech Republic, which says a lot about the post -Cold War rise in the country as is the case in its long -term risks.

The Czech Republic, also known as Czechia, built its economy after the Cold War in the same way that Germany achieved after disposal: focusing on the industry. Manufacturing has been flying as a share of GDP above 20 % in the country over the past thirty years, as it has joined Germany in violating the western direction of manufacturing.

A third of Czech exports go to Germany, while 20 % of its imports come from its closest neighbors.

The links between the Czech Republic and Germany are better by Skoda, the largest company in the Czech Republic, owned by Volkswagen, the largest in Germany.

Skoda power

Skoda is a large part of the huge Volkswagen collection, which also contains Audi, SEAT, Porsche and Volkswagen brand itself.

The car maker achieved 26.5 billion euros of revenue in 2023, with a huge increase by 26 % in 2022, and equivalent to approximately 10 % of the Czech economy.

If it is an independent company, Skoda will rank first in the best 150 Fortune 500 EURPE, as one of the 10 best car companies, and the largest Czech company in the list.

Also, the auto industry company has not stumbled in recent years, such as its colleagues in the automotive companies under the umbrella of Volkswagen. In the first nine months of 2024, Skoda increased the operating profit by almost 35 % compared to the same period in 2023, while the Volkswagen group as a whole faced a 10 % decrease in profits.

The group profit margin in the first nine months of 2024 of 8.3 % also places it among the most profitable brands via Volkswagen and above the group margin of 5.6 %.

He told “Golden Eggs” inside the Volkswagen group, according to David Havert, the chief economist in the Czech Republic in Engy, “Golden Eggs” inside the Volkswagen group. luck.

Auto industry sales focus on Europe greatly. About nine of every 10 of its cars were delivered to Europe in 2023, as the rest went to the Asia Pacific region. This seems to have protected the manufacturer from recycling in the sales of Volkswagen, which was built on the market of booming consumer in China, which has been reversed in recent years.

In fact, during the year 2024, Skoda increased its delivery by 6.9 %, compared to a decrease of 1.4 % of Volkswagen, which reflects approximately 10 % in deliveries in China last year.

This difference from Volkswagen speaks wider to the difference between Czechsia and Germany.

The Czech Republic has struggled, along with Germany, until 2024, with 0.3 % domestic product decreased in the aftermath of the sanctions on Russian energy.

However, the country is expected to recover faster than its partner in the West, with growth expectations of 2.3 % in 2025, approximately three times the growth of Germany’s 0.8 %, according to the expectations of the International Monetary Fund (IMF).

The Czech economy has proven to be more attractive to companies looking to expand their horizons. Wages in the country, for example, about half of what are in Germany, which reduces the costs of input.

Its widest population also appears to be larger.

“I would like to say that the Czech consumer is less depressed than the German consumer,” said Anna Boata, head of economic research in the Allianz Trade, luck.

The domestic demand is expected to be a large engine for Czech GDP growth this year, and reflects the high consumer confidence.

But it seems that the indisputable bonds between Czechia and Germany are still threatening the country’s economy.

Czech obstacles

The Czech manufacturing production in Lockstep has moved with Germany since the last recession began in 2022. PMI in both countries have been in a shrinking area nearly three years ago with manufacturers fighting with high energy costs and declining demand, causing effects on producers.

Ladislav Tlay, a lecturer at the University of Prague for Economics and Business, indicates that among manufacturers and companies in the supply chain, the car sector in Czech is about half a million jobs.

“Frankly, if anything wrong happens … it is outside the work, and this country may collapse technically.” luck.

Both countries were fighting with low investment, creating a barrier to future growth.

“This is not really good for these economies, and this does not indicate anything good for the coming years,” said Tail.

One of the main concerns faced by Chezia for its heavy economy in manufacturing is the repressive climate targets. The country joined Italy last November in calling for relaxation Climate rules in the European Union This will prohibit the sale of vehicles from which carbon emanates by 2035.

Boata Alianz says 2025 is a year of moving to the auto company and economies they occupy. On the one hand, they will need to increase their production of electric and hybrid vehicles to comply with environmental regulations. On the other hand, this means going into the most competitive markets experienced by the cheap Chinese competitors.

“This will also confirm some effect on the transformations of the Czech suppliers who are mainly associated with German car makers, not only the size, but also the price,” says Boata.

The Ji Harlant is widely writes about the Czech economy. He says that there are four stages of structural crises that the country should go through before policymakers can intervene.

“You have to realize that there is a problem. Second, you have to admit it is your problem. Third, you have to force yourself to join that you want to do something about it. And the fourth, you are doing something about it.”

The Czech Republic is in the third and fourth place when it comes to its auto sector, while it is believed that Germany is stuck at the point zero.

As a result, Havert believes that the Czech economy is slowly separated from Germany.

“The books of their own requests have been bad for a long time, so far, it has been always enough to wait until things improved, but this is not the case anymore,” Havartlant said of Cisia and Germany.

politicalThe opposite wind

The political story in Czech is the same as in Germany, and increasingly, through the rest of Europe.

As in Germany, the elections arise in 2025, and there is a popular tone similar to the polling in both countries.

Among the alternative to Deutschland (AFD) in Germany, the National Assembly in France, the Italian brothers in Italy, and the UK reform, the largest economies in Europe were threatened by increasing support for the advanced right -wing political parties ready to disturb the current situation.

Therefore, patriots, the similar Jingain of Europe, follow the rebellious populist Party of Sezchyan, which is scheduled to sweep the elections later in 2025.

Tail says that the potential victory of patriots of Europe will have a positive effect.

Instead, it is the German elections in February that are a greater risk of the Czech economy.

It is concerned that the increasing effect of the far -right AFD AFD may target Volkswagen of job discounts outside Germany, with tens of thousands of employees in Skoda.

The country hopes that Germany will realize the importance of “golden eggs” and the deepest partnership that seems to serve more Czechs than its ally.

Editor Note: A version of this article first appeared on Fortune.com on January 21, 2025.

This story was originally shown on Fortune.com