Romania considered very exposed to a slowdown in the German auto industry

Romania is very exposed to a slowdown in the German auto industry as the automotive-related exports to Germany account for about 15 percent of total exports, representing roughly 10 percent of the country’s GDP, an ING Bank report says.

The German car industry faces an uncertain environment and certainly the imposition of US tariffs would be a very unwelcome headwind, according to the experts.

“Looking across the CEE space, the Czech Republic and Romania look most exposed, while Hungary will hope that its concentration in the luxury German car space will provide some insulation,” the report says.

Germany is the largest export partner for Romania with a 22.9 percent share of total exports.

“Around two-thirds of total exports are automotive related. Hence, automotive-related exports to Germany account for about 15 percent of Romanian exports, representing roughly 10 percent of Romania’s GDP and employing approximately 90,000 people,” analysts point out.

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A slowdown in the German auto industry would have a direct negative impact on Romanian exports, planned investments by German companies and GDP growth with subsequent implications for the currency, especially considering the twin deficits are at or above warning levels, experts estimate.

According to the analysts, Central and Eastern Europe’s direct exposure to the US car market is relatively small but its indirect exposure via Germany is much larger.

“Were the German auto sector to face another leg lower this year, we expect the likes of the Czech Republic, Romania and Hungary to bear the brunt of the challenge,” the report indicates.

The German economy is not only about cars, but cars do play an important role. Currently, some 2 percent of total employment is in the automotive industry.

However, adding second and third round effects (just think of entire villages close to production plants), between 7 percent and 8 percent of the entire German economy is linked to the automotive industry.

“And there is more. Between 70% and 80% of automotives produced in Germany are exported making automotives one of the most important export goods. Also, one-third of all investments in Research and Development in Germany stem from the automotive industry,” the report says.

Poland may prove to be among the least sensitive of the CEE economies to the eurozone and German slowdown.

“Some CEE peers might have lower fiscal room (especially Romania) or are much more open economies (such as the Czech Republic and Hungary),” according to the report.