Relocating production from China to Central Europe? Not so fast!

Western European imports from central Europe have fallen dramatically, while imports from China fell much less, and had already recovered to pre-COVID level by April 2020. Central European governments should instigate new measures to foster the transition towards knowledge-intensive economic activities.

 
The COVID crisis caused a major setback to global trade and disrupted the functioning of global production networks. From the perspective of Central, Eastern and South Eastern European (CESEE) countries, this has raised the hope that Western European manufacturers will bring their suppliers from East Asia closer, potentially boosting investment in CESEE.

The volume of merchandise trade is expected to drop by almost 20% in the second quarter of 2020 compared to the same quarter of the previous year, the steepest decline on record according to the World Trade Organisation. Almost half of global trade is composed of intermediate goods for production, and there were companies in Europe and elsewhere which did not receive essential intermediate inputs for production during the height of the COVID crisis. Such disruptions to global trade and global production networks, or global value chains (GVCs), can call the benefits of globalisation into question, and might prompt companies to bring their suppliers closer. For Western European producers, the CESEE region would be a natural place to relocate their suppliers due to its geographical closeness. Relocation would boost investment in CESEE, which in turn could speed up the recovery from the corona-recession and support medium-term growth and jobs.

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Πηγή: bruegel.org