How the face of Czech industry is changing

Industrial production has been declining over the past two years, but is likely to show growth this year. The situation has been affected by the pandemic, the energy crisis, and the weak performance of the German economy. To assess it from a broader perspective, it is necessary to examine developments over a longer period. Two categories are clearly visible: sectors that are growing in the long term and sectors that are declining, leading to overall stagnation.

If we compare industrial production in June this year with 2018, we find that it is about 3% lower. At that time, production was at an all-time high, but a year later it began to decline. The largest declines were concentrated in a few sectors. Mining and quarrying is now 38% weaker, which is related to the shift away from fossil fuels. Electricity, gas, and water production and distribution fell by 23%, mainly due to lower consumption by households and businesses and the impact of the weather. In the manufacturing industry, the biggest declines were in the production of basic metals (-27%), machinery and equipment (-14%) and chemicals (-13%). The common denominator of these sectors is their high energy intensity. As energy prices in Europe are unlikely to return to pre-crisis levels, these sectors can be expected to continue to decline in the coming years.

On the contrary, the production of pharmaceutical products grew by half compared to 2018. This increase is related to technological progress and the long-term growing demand for medicines due to the aging population. The production of motor vehicles increased by 21%, mainly thanks to strong exports and the production of models with higher added value. The production of electrical equipment grew by 18%, which is related to digitalization and growing demand for energy-efficient technologies. These sectors show that Czech industry also has modern and growing parts.

Due to low capacity utilization and increasing automation, more than 150,000 employees have left Czech industry, mainly to work in services. Industry will therefore have to rely more on modern technologies and higher labor productivity, as cheap labor will no longer be a major competitive advantage. In the long term, the Czech economy will not be able to avoid structural change—traditional sectors will gradually weaken, while more technologically demanding sectors have a chance to grow. Although the overall performance of industry remains at the 2018 level, its structure is changing significantly.