PRAGUE, October 1 — A new Atlantic Council analysis warns that Central and Eastern Europe’s manufacturing base is under growing strain as German demand weakens and Chinese overcapacity rises, threatening the region’s economic stability. The story begins with a stark assessment: industry accounts for between 21 and 33 percent of national GDP in CEE countries, underscoring the region’s deep manufacturing base. Yet this capacity is at risk due to falling demand and insufficient attention to CEE economic resilience under pressure.
At its heart, the report links Germany’s economic woes — stemming from the cutoff of Russian energy, transatlantic uncertainty, and declining demand from China — to mounting strain on CEE, which remains structurally reliant on German demand despite some export diversification to the United States. German imports of cars, capital goods, and industrial machinery from China are rising rapidly, while Chinese demand for EU exports is declining, contributing to job cuts and growing calls for safeguards, with even free-trade supporters now warning of a ‘China Shock 2.0’ for German manufacturing.
Foreign direct investment stock in CEE remains overwhelmingly owned by EU investors at about 85 percent, but FDI from Germany fell by 22.5 percent between 2022 and 2024 and has not recovered, with only partial offset from France and other non-EU investors. The analysis notes that three decades of integration with German and Austrian economies have made CEE more industrialized than the EU average but at the cost of heavy reliance on external investment and demand, a model that may no longer drive growth but still anchors regional economic activity.
If this model continues to falter, a slowdown in Germany could tip parts of CEE into severe recession. Czechia and Slovakia are identified as the most exposed: Czechia sends 32 percent of its exports to Germany, with a sixth of its exporters serving no other market; Slovakia’s exports approach 90 percent of GDP, and automobiles make up 34 percent of its exports, placing it directly in the path of Europe’s eroding automotive position.
Since 2018, Germany’s share in CEE countries’ exports has declined by only one to three percentage points, and in 2024, Germany still accounted for 27.1 percent of Poland’s exports and 24.9 percent of Hungary’s exports — far ahead of the next-largest destinations. The report concludes that without coherent redeployment of CEE’s industrial capacity, efforts to reduce dependence on China will lack credibility, and urgent action is needed to prevent knock-on effects from becoming more painful.
