Czech Republic: Are arms, not cars, the new economic engine?

Time of India

14-05-2025

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The Czech Republic has become the country with the highest per capita production of cars in the world over the last thirty years. 2024 was a record year with more than 1.4 million manufactured vehicles in the country of 10 million inhabitants.
This is an increase of almost 4 per cent year-on-year.
However, production plummeted by 7.1 per cent in the first quarter of 2025.
The main reason for this was the drop in demand in the West, which was triggered by the problems in the European automotive industry, the slow transition to electromobility, and US tariffs.
Meanwhile, the country's arms industry is booming.
"The defense industry can become a new engine of the Czech and European economy,"
Danuse Nerudova
, member of the European Parliament's Committee on Budgets, told DW.
"It can utilize the supply capacities and workforce freed up by the automotive sector, boost economic growth and strengthen our security at the same time."
Arms as new economic engine?
Petr Zahradnik, a Czech economist and advisor to the European Economic and Social Committee in Brussels, is somewhat more skeptical. "Czech arms factories are experiencing golden times, that's true," he told DW.
Yet, he adds that he doesn't believe that arms will replace the automotive sector as the new engine of the Czech economy.
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"I also don't want to see weapons production replace commercial production," he said.
Even before
World War I
, the territory of today's Czech Republic was known as center of arms production. For decades, then-Czechoslovakia was also one of the world's leading arms producers. For years, arms accounted for around 10 per cent of all Czechoslovakian exports.
Also domestic demand was driven by the country's heavily armed army of several hundred thousand men until the late 1980s.
However, the end of the Warsaw Pact — a defense treaty and military alliance between the Soviet Union and seven other Eastern Bloc socialist republics signed in 1955 — as well as the general disarmament in the early 1990s, which was accompanied by a significant reduction in the military budget, hit Czech arms manufacturers hard.
Czechoslovakia's last major armaments order was an export contract for 250 T72 tanks to Syria in 1991.
Then, in 1992, Czechoslovakia split into two individual states, the Czech Republic and Slovakia. This also led to a division of the defense industry. The production of tanks and heavy machinery was mainly in Slovakia, while the aircraft industry, the production of small arms, ammunition, radar systems and, above all, small arms was primarily located in the Czech Republic.
Not entirely successful privatizations, the reduction of Czech defence spending to 1 per cent of the country's GDP, as well as the professionalization and downsizing of the army to only around 20,000 soldiers considerably weakened the Czech defence industry in the years after the split.
Growth factor Ukraine war:
Following Russia's invasion of Ukraine in February 2022, Czech arms factories massively increased their output again. In particular, the modernization of tanks, and the production of ammunition, military vehicles, self-propelled artillery howitzers, drones, radar equipment and machine guns have been booming since.
40 per cent of the Czech arms factories' production goes to Ukraine, where joint ventures have been established as well.
In total, up to 90 per cent of Czech-produced arms are exported. At the same time, purchasesby the Czech army are also on the rise.
In 2024, Czech defense spending reached 2 per cent of the country's GDP and Czech Prime Minister Petr Fiala announced that in a few years' time, it will amount to 3 per cent.
New jobs for automotive employees:
The boom is set to continue for the next few years. This year, ammunition manufacturer STV Group will increase its production of large-caliber artillery ammunition, which it mainly supplies to Ukraine, from 100,000 units to 300,000.
The Czech PBS Group also plans to double its production of engines for missiles and drones.
In turn, the number of employees in these companies is also growing. STV Group is planning to hire 1,000 additional employees in the near future. According to its annual report, the Czechoslovak Group, the largest Czech arms manufacturer, which includes the Tatra military car plant as well as ammunition production, already employs 14,000 people.
By comparison, the largest automotive group Skoda-Auto employs around 20,000 people at its main plant in Mlada Boleslav. However, as the less demanding production of electric cars will lead to a reduction in the number of employees in the future, Skoda Auto boss Klaus Zellmer told the German print magazine Automobilwoche in late February 2025 that his company, which currently employs 41,000 people, was planning to reduce its workforce by 15 per cent.
Many of these employees are likely to find new jobs in the defense business. According to Czech recruitment agencies, they will not require any major retraining when they switch industries.