Apart from Poland, central Europe’s Visegrad Four face a slowdown
Publicado en The Economist, el 10 de julio de 2025
FOR VIKTOR ORBAN, it was a nightmare. On June 28th over 100,000 people marched in Budapest’s Pride parade, championing LGBT rights and defying a government ban. Hungary’s hard-right prime minister has dominated his country’s politics since 2010. But for months polls have put his Fidesz party well behind a new outfit founded by Peter Magyar, a conservative who rails against government corruption. With a general election due in April, Mr Orban’s formula of bashing gays, migrants and the European Union seems to have stopped working.
Yet corruption is far from the only reason voters have turned on the government. “The Hungarian economy is going nowhere,” says Peter Virovacz, an economist at ING, a bank. After a good run in the past decade, the country has run out of steam.
Central Europe’s “Visegrad” states, or V4 (the Czech Republic, Hungary, Poland and Slovakia), have had strong economies for years. Now, apart from Poland, they are going through a rough patch. All four have revised expectations down in the face of Donald Trump’s trade war. Poland is still expecting growth of 3.3% this year, according to the spring forecast of the European Commission. But Hungary is expected to grow by just 0.8%, Slovakia 1.5% and the Czech Republic 1.9%.
In the past five years the V4 have faced repeated tests. Both the pandemic and Russia’s full-scale invasion of Ukraine, which hugely inflated energy prices, depressed the growth they need to catch up with western Europe. The latest headaches are rising tariffs, which feel especially threatening to open economies such as the V4, and the woes of German industry. Germany trades more with the V4 collectively than with America or China, and is the biggest investor in the region.
“The broad story is still one of resilience,” says Richard Grieveson of the Vienna Institute for International Economic Studies. Consumption and investment are strong and labour markets are tight. Direct trade flows between the V4 and America are low, so the immediate impact of Trumpian tariffs is relatively modest. Slovak exports to America account for 4% of GDP; for the other three the figure is 1%-3%. Poland has the least to worry about, with a big internal market of 39m people, larger than the other three combined. Exports of goods and services in 2023 came to 58% of Poland’s GDP; for Slovakia it was 91%.
What will hurt more is the tariffs’ collateral damage, which stems from the V4’s close ties with Germany’s export-dependent industries. These were struggling even before Mr Trump started his trade war. Germany’s economy contracted slightly in both 2023 and 2024. The car industry, Germany’s biggest, faces declining demand and rising Chinese competition. Mr Trump’s 25% tariffs on European car imports have added to its woes.
That hits the Czech Republic, Hungary and Slovakia hard. Mercedes, Volkswagen (VW) and BMW are big investors in all three countries. Audi (part of VW) employs more than 11,000 workers at a factory in Gyor, in western Hungary. In Kecskemet, south of Budapest, a Mercedes plant has over 5,000 employees. The automotive industry is “the crown jewel” of central Europe’s industrial heartland, as a recent paper by the European Council on Foreign Relations (ECFR) puts it. It generates 9% of GDP in both the Czech Republic and Slovakia.
The ECFR paper warns that Europe’s industrial might could wither if carmakers close their factories because of competition with Chinese brands. Another possible scenario is a “sinicised heartland”, with Chinese firms acquiring or creating car companies in central Europe. This process has already begun. In May BYD, a Chinese electric-vehicle (EV) maker, announced that it will establish its European headquarters in Hungary, where it is building an enormous factory. China’s CATL is building a huge battery plant for EVs in the Hungarian city of Debrecen. Volkswagen is reportedly considering Chinese offers to buy some of its excess capacity.
Poland’s economy is more diversified, and the car industry plays a lesser role. But Germany is still its largest trading partner, accounting for a quarter of trade, and its biggest European investor. It provides 16% of foreign direct investment.
There is a silver lining to the V4’s tight intermeshing with German industrial supply chains. The region is expected to benefit from the massive investment programmes in defence and infrastructure launched by Friedrich Merz, the new German chancellor. Mr Grieveson thinks Germany’s fiscal stimulus will have a spillover effect in the V4 starting next year.
Some hope peace in Ukraine will provide a boost, if it comes. Reconstruction “will be a growth driver”, predicts Adrian Stadnicki of the German Eastern Business Association. A study by the United Nations, the EU and the World Bank estimates the cost of rebuilding at half a trillion dollars. But whether such sums can be ponied up at a time of tight budgets and waning global interest seems doubtful.
Zoltan Torok, an economist at Austria’s Raiffeisen Bank in Budapest, agrees that peace will be a boon for the region. But he does not think it will enable the V4, with the possible exception of Poland, to escape the middle-income trap; they may remain stuck at an intermediate level of economic development. They badly lack innovative companies. As they spend only 1-2% of GDP on research and development, this is unlikely to change soon. No wonder that according to Mr Torok, “the mood of Hungarian business is depressed.” There seems to be more excitement on Budapest’s streets than in its boardrooms