Which Czech industries will feel the impacts of the war in Ukraine?

The economic impacts of Russia’s invasion of Ukraine will hit the Czech manufacturing and heavy-industrial sectors hardest.

 William Nattrass

Written by William Nattrass Published on 28.03.2022 13:21:00 (updated on 28.03.2022) Reading time: 3 minutes

The war in Ukraine is likely to send the Czech Republic’s troubled economic circumstances even deeper into difficulty. Spiking fuel and energy costs are expected to contribute to rising consumer prices, and dire circumstances are also forecast for Czech businesses.

A study among HR professionals by the Hofmann personal staffing agency in March found that almost three-quarters of Czech companies expect to feel negative impacts of the war. The study found that negative impacts are feared the most in manufacturing, engineering and industrial sectors, where a lack of necessary components and materials will be compounded by logistics complications and more expensive energy.

“As in pandemic times, automotive production is slowing down, mainly due to a lack of components and chips. Logistics complications and the energy-intensity of car production is also playing a role,” said Gabriela Hrbáčková, Director of Hofmann Personal.

The automotive industry will also face problems caused by reduced foreign sales. Škoda Auto, the Czech Republic’s biggest car manufacturer, pulled out of the Russian market shortly after the invasion of Ukraine began. Russia was previously one of the carmaker’s most important markets, so the withdrawal is a heavy financial blow.

An expected shortage of necessary materials is also feared in other manufacturing and heavy industry sectors. Russia is one of the world’s leading exporters of metals such as steel, nickel and aluminum, so disruption in trade will be a major headache for heavy manufacturers and engineering companies.

Another problem for heavy industry and construction is the fact that many modern materials are created through energy-intensive processes. Producing these materials was already becoming more difficult amid a post-pandemic surge in energy prices; now, the war in Ukraine threatens a much more significant surge in costs.

Finally, the availability of labor is another concern. A quarter of companies contacted by Hofmann Personal described themselves as heavily or very heavily dependent on Ukrainian workers.

18 percent reported an outflow of Ukrainian workers amid the crisis. And while 68 percent of companies said they plan to offer jobs to Ukrainian refugees, there’s concern that the areas of the economy most affected by the crisis are not those best suited to arriving refugees.

“These fields offer work that is especially suitable for men. However, over 80 percent of refugees are women,” Hrbáčková pointed out.

Only nine percent of companies think the crisis situation will have no impact on their operations, with supply chain issues causing problems throughout the economy.

High energy prices are meanwhile expected to hit small businesses particularly hard. Large multinational companies have better chances of negotiating energy purchases at advantageous rates than small family-run enterprises.

There’s also an expectation that food producers could face problems keeping prices down as a result of the war. A Prague baker recently told Seznam Zpravy that he expects the price of a single rohlík, the much-loved Czech baked product, to rise to CZK 9 in future.

This is no surprise given Ukraine’s importance as an exporter of agricultural products such as cereals and oils. The devastation of agricultural production in the country will likely to lead to significantly higher costs for basic ingredients such as flour.

It might be supposed that this situation would present opportunities for the Czech agricultural industry, supplying homegrown products to help meet a shortfall in demand. But here again, any benefits will likely to outweighed by spiking fuel prices.

The war in Ukraine causes unprecedented difficulties throughout the Czech economy. And while the worst impacts will be felt in heavy manufacturing industries, small businesses and consumers should also brace themselves for a financial hit.

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