CE Watch: 20 years EU membership - the rise of trade

In our first report devoted to the 20th anniversary of the EU enlargement for CE countries, we looked at broader changes in these economies and their banking sectors after the EU entry. In this note, we delve deeper into developments in the trade of goods and services among the V4 countries.

Next up: developments on the labour market.

• Rapid goods export growth especially in the first decade after EU entry
• Yet, EU entry only preserved the trade model developed after the big transformation of the 90s
• Trade with Germany is still crucial but declining while intraregional ties are on the rise
• EU membership boosted V4 trade outside the block including with Western Balkans (Hungary in particular).

The growth of goods exports in the V4 countries was particularly fast in the first period after EU accession, up until the global financial crisis (GFC). The average annual growth was at 18.2% between 2004 and 2008 vs 6.4% in the years 2009 to 2023).

The fast increase in goods export was a big driver of economic growth of the manufacturing-oriented countries of Czechia, Hungary, Poland, and Slovakia since their EU entry. Between 2004 and 2023 exports increased by 3.9 times in Hungary, 5.5 times in Czechia, 5.6 times Slovakia, and 7.4 times in Poland (in euro terms).

Average annual export growth reached 7.3% in Hungary, 9.3% in Czechia, 10.4% in Slovakia and 10.9% in Poland.

Imports were also growing fast, however at a slower pace than exports (i.e., 4.7 times increase versus 5.6 times increase as an average of the four countries) – underlining the general tendency of substantial expansion of export-oriented manufacturing capacities in all of the four countries.

Nevertheless, trade increased rapidly in the pre-EU accession decade as well. In the case of Hungary, the export growth rate in the pre-accession period was similarly strong as in the first period after gaining EU membership. In the case of the other three countries, it was weaker but still faster than in most recent years.

After the fall of the COMECON (Council for Mutual Economic Assistance), a large structural change occurred in the profile of the export products mirroring the transformation of the four countries’ economies. Export-oriented large FDI inflow took place especially into the car and electronics industry utilizing the available cheap labor and the proximity of Western European markets. As some of the traditional industries lost their - absolute or relative - importance (in Czechia and Slovakia heavy industries like steel and iron production, in Poland shipbuilding and the textile industry, in Hungary also the textile industry and processed and unprocessed agricultural products), more high-tech and mid-tech manufacturing activities gained ground. The combined share of the electronics, car and machinery industry in exports increased substantially and they have become the top three export product groups in all the countries by the time they joined the EU.

Accordingly, a major part of the structural change took place in the pre-EU accession period in the 1990s and early 2000s. 20 years of EU membership mainly preserved the previous changes and produced little further shake-up neither in the fundamental structures in the related economies nor in their export product-profile.

However, still some noteworthy changes took place: i.e., Poland’s food export increased 2 times faster than total exports (and increased from 7% to 14% within total exports), while the share of cars and car parts doubled within total exports in case of Hungary (and reached 15% in total) since the EU accession.

The large re-orientation of CEE countries’ export relations came through with the collapse of the COMECON in the early 1990’s. Core Western European (i.e. Germany, Switzerland, France, Belgium, the Netherlands and Italy) markets became the single most important export markets already by the middle of the 1990’s with nearly half of goods exported going to these markets. Exports to core Western European markets further increased to above 50% of the total in most of the countries by 2004, nevertheless, the share of these export markets did not increase further since then (on the contrary, there was a marked decrease, especially in case of Hungary and Slovakia). In terms of imports from core Western European markets, the share within total imports reached above 40% at the time of joining the EU, but over the past 20 years, some erosion of the market share occurred (except in Poland where it further increased).

Germany has been the single largest trading partner for each country, accounting for around 25% of trade (but for Czechia it is even higher: 30+%).

Austria is also an important trade partner for the neighbouring countries (Czechia, Hungary, Slovakia) but less so in the case of Poland. However, the relative share of Austria has decreased in trade relations: for example, in the case of Hungary, Austria as an export partner was number two (with nearly 12% share) in 1994, still number two when EU accession took place (albeit with a decreased 8% share) but fell to number 7 (4%) by 2023. In imports, a similar tendency occurred: while Austria remained in top 3 import countries for Hungary, its share within the total decreased from nearly 13% in the mid 1990’s to 6% in 2023.

A major trend is the intensification of intra-regional trade relations. The 4 countries constitute the Visegrad Group (V4) – a cultural and political alliance, which struggles for survival nowadays. Nevertheless, economic ties amongst the V4 grew fast. In the case of Poland, the other V4 members' relative importance has grown 3-fold since 1993, for Hungary the related metrics are 2.5 times. For Czechia and Slovakia, it is also part of the general trend.

The importance of the V4+ (i.e. V4 plus the other regional economies: Romania, Austria, ex-Yugoslavia) has also grown: this country group accounts for roughly 40% of total trade for Slovakia, 30% for Hungary 25% for Czechia and 15% for Poland.

Trade with neighbouring countries also increased: especially in the case of Hungary, where neighbour countries accounted for 21% of total export in 2003 and 33% in 2023.

The impact of the split of Czechoslovakia into Czechia and Slovakia was that a large part of intra-Czechoslovak trade suddenly became part of foreign trade statistics (i.e., Slovakia accounted for around 20% of total external trade for Czechia in 1993 and the related figure was around 40% for Slovakia in relation to Czechia in the mid-1990’s).

It is also worthwhile to look at how trade relations developed with other regional partners: the Nordic+Baltic countries and the Balkan countries. The importance of the Balkan has grown much for Hungary (export share more than doubled over the past 20 years and reached 12.7% in 2023) but also for the other countries (where the growth dynamics were similar, but the related export share reached 3-4% by 2023). Interestingly, trade relations vis-à-vis the Baltic and Nordic countries did not represent a similar dynamic growth, just on the contrary: for Poland, this country group export share decreased from 12.3% in 2003 to 7.3% by 2023, in the case of Hungary the related figures are 4.9% and 1.9% (for Czechia and Slovakia the export share slightly increased).

The share of ex-USSR republics was still relatively high in the early 1990’s despite the collapse of COMECON and wide-scale economic problems. Exports to ex-USSR ranged from 5-10% in export (highest in Hungary, lowest in Czechia) in 1993 and import share 8-23% (lowest in Poland, highest in Slovakia). By the time of the EU accession, the related shares got halved (but in Poland, where there was a growth instead). The next decade (2004-2014) brought about the rebuilding of trade relations with ex-USSR republics, although then again, the last decade brought another decrease and reached new all-time lows (especially in the case of Czechia and Poland). While Hungary and Slovakia have still a high energy dependency ratio towards Russia, this has not been so pronounced in the case of Czechia and Poland and they have successfully detached from Russian energy imports by now.

Zoltán Török

Looking at the changes in the shares of services exports among the V4 countries, we find that for Czechia and Poland, the share of exports to Germany has declined over time, while the share of service exports to other countries has mostly increased, leading to a higher diversification of foreign trade. In Poland, the sharp decline in service exports to Germany can be explained by a rising dominance of cargo transport or business services sector, which is directed to varied countries.

For Hungary and Slovakia, we identify the opposite trend as both countries seem to have achieved greater services trade integration between previous close partners rather than the broader global economy. The shares of their service exports have risen both towards the remaining V4 countries and Germany.

The process of economic integration fosters closer economic ties and enhances trade flows within the EU. For the V4 countries, the EU accession has usually facilitated greater trade volumes with each other as well as with other EU member states, thus contributing to regional economic growth and cooperation in line with theoretical assumptions. In some instances, exports have been redirected away from major EU countries, as exemplified by Poland, which has re-calibrated its service export dynamics away from Germany. Yet, joining the EU helped increase foreign trade both within the broad EU market and also with the rest of the world. The latter can be linked to better access to foreign markets (especially the US and China) for the EU as a whole, and also to economic growth over the period under review. With that, it is also a great case study providing valuable lessons learned to the current EU membership candidates in the CEE region.

Martin Kron