VW scandal may affect investment in Central Europe

Subject

The impact of the Volkswagen scandal on Central Europe.

Significance

Autos account for 15-25% of total exports across Central Europe (CE). Poland's consumer watchdog has launched an investigation into the Volkswagen (VW) emissions affair, which is likely to affect up to 150,000 cars locally, alongside an estimated 2 million in Hungary. The Czech authorities are yet to release official figures on locally manufactured cars fitted with 'defeat-device' software circumventing emissions checks; the Slovak government has been reticent about the likely impact on the economy.

Impacts

• The greatest impact will probably fall on parts suppliers, for which demand is volatile and susceptible to short-term labour market changes.
• Falls in Czech and Hungarian industrial output should be short-lived and offset by buoyant domestic demand for cars produced locally.
• More stringent regulatory checks are expected on diesel-emissions technology by European and local regulators across CE.
• Over the longer term there will be more investment in electric cars, helping diversify sources of foreign capital in CE.