Readers Question: Discuss the Impact on Czech Economy of a decline in the Car Industry.
The car industry plays an important role in GDP of Czech (16% of economy is Car industry) (19% of export revenue) and jobs. BTW: Skoda is the main car.
A decline in the car industry would lead to lower exports and lower aggregate demand. This would lead to lower rates of economic growth and a rise in unemployment. It may also adversely affect related industries such as suppliers to the car industry. Therefore, there could be a negative multiplier effect.
It would also cause a deterioration in the current account balance of payments. Cars give 19% of export revenue so it would be relatively significant and could cause a depreciation in the exchange rate.
It depends on what else is happening in the economy. For example, if the economy was able to diversify into new industries then the slowdown may be avoided. If the decline of the industry was rapid then diversification would be much more difficult.
It is likely there would be short term structural unemployment, because it would take time for new industries and people to find new jobs. The time period will depend on the flexibility of labour markets. e.g. how much skills and education workers have.
It might depend on the success of the government to increase new firms and deal with the structural unemployment