POLAND
Poland is the largest economy in CEE, and has a market of 38 million people. One of the few European countries not to experience recession in 2009, it has grown robustly since, with GDP expected to expand by nearly 5% in 2018, and 3.7% in 2017.

Domestically, there are some concerns about the government’s increasingly active role in the economy, including the financial sector and energy, and political control of parastatal companies. Nonetheless, the government’s investments have been a factor in M&A in recent years, particularly the 2017 acquisition of 32.8% of Pekao, the country’s second-biggest bank, by a state-controlled insurer and the Polish Development Fund. And politics have not stopped foreign institutions from expanding, as BNP Paribas’s US$1bn acquisition of Raiffeisen Bank International’s Polish subsidiary in 2018 demonstrates.

Poland has also seen growing activity in the TMT sector, including in tech development, and back-office functions for international financial institutions. While a slowdown seems likely in the coming years and workforce shortages are an issue, Poland’s fundamentals remain strong.

“Investors are coming here to expand their businesses and to increase their profitability,” says Jacek Michalski, partner at Wolf Theiss Poland.
CZECH REPUBLIC
The Czech Republic is the region’s third-biggest economy and has the second-highest GDP per capita. The country benefits from a long history of manufacturing and excellent infrastructure. Growth is expected to come in at 3% in 2018 and a similar level in 2019. Following several strong years, dealmaking may be reaching a natural plateau. The market is relatively saturated, with fewer targets available, and interest rates have started moving upwards, ahead of much of the rest of the region.

Nonetheless, there is still considerable potential in the short as well as the long term. TMT is seeing more activity, and Prague’s burgeoning tech industry is one of the region’s leaders in blockchain development. The automotive sector remains strong and has attracted PE activity, though domestic funds such as PPF and Genesis are increasingly active outside the country.

“We are seeing that companies are looking for qualified personnel and intellectual property,” says Robert Pelikan, counsel at Wolf Theiss Czech Republic. “And we believe that this is something which the Czech Republic can offer.”
HUNGARY
Hungary’s economy has grown faster than much of the region over the past few years, driven by FDI, rising wages and the application of EU funds. GDP is expected to expand by 4.3% in 2018, slowing to 3.4% in 2019.

The country’s automotive sector, led by German manufacturers and their suppliers, continues to thrive. However, it faces downside risks from global trade shocks and competition. Capacity constraints are also an issue across the board, as the labour market has tightened, while government efforts to constrain a “twin deficit” may lead to further fiscal tightening, particularly once the 2019 European Parliament elections are finished. Finally, EU funding seems likely to be reduced after 2020.

The government, however, is tailoring policy to prepare for less EU cash, and its low tax incentives and support for investors in manufacturing continue to win plaudits in the business community, even if Budapest’s clashes with Brussels institutions get more headlines. The re-election of the government, with an absolute majority, in 2018, points to a continued period of political stability.

A growing trend is for larger Hungarian businesses to spread their wings outside the relatively small domestic market. OTP, the country’s leading bank, has been present on a range of markets for many years, and is undertaking a new wave of acquisitions.
ROMANIA
Seen by some as CEE’s sleeping giant, Romania’s population of 20m makes it the third most-populous country in the region. While GDP per capita is relatively low, growth has been among the highest in Europe in recent years – topping 7% in 2017, before cooling to 3.5%-4.0% in 2018-19.

The left-of-centre government’s tax cuts and increases to the minimum wage and public sector salaries have stoked growth and raised spending power, though they have also raised inflation and the fiscal deficit. Although this pro-cyclical policy creates some risks in the case of a European or global downturn, Bryan Jardine, partner at Wolf Theiss Romania, believes: "Romania is much better prepared, and its financial sector more robust, than in the late 2000s, when boom turned to bust and the country called in the IMF. We don't see any sequels in our immediate future."

Sectors of strength include manufacturing, where Renault’s Dacia and its suppliers continue their success, with 2018 expected to see an all-time high in car production. TMT benefits from the large pool of skilled, multi-lingual graduates, with the city of Cluj a rising tech hotspot. In addition, Romania is one of Europe’s leading wheat producers, and the 2018 acquisition of Agricost by the UAE’s Al Dahra Agriculture for €200m is indicative of agricultural potential.

“Romania is among the fastest growing economies in CEE and the opportunities for expanding are tremendous,” says a partner in a UK-based TMT company. “A high level of foreign investment, along with robust domestic demand and the government making significant reform measures, have all helped Romania grow at a high level.” Ileana Glodeanu, partner at Wolf Theiss Romania, adds: "As is always the case, it's a question of timing and we think the times will continue to be good for Romania."
COUNTRY VIEWS
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AUSTRIA
Austria’s GDP is expected to grow by 2.7% in 2018, moderating to 2.0% in 2019, according to the European Commission. While the pace of growth is modest, Austria is by some margin the most affluent country in the region and one of the wealthiest in Europe, with nominal GDP per capita nearing $50,000. Despite the entry of the populist Freedom Party into government, Austria has maintained political and economic stability, with a mix of domestic demand, investment and exports maintaining momentum.
“The prevailing headlines are very good for Austrian companies right now,” says Horst Ebhardt, partner at Wolf Theiss Austria and head of the firm’s corporate/M&A team.

Austria has developed a diverse range of mid-size companies characterised by their specialisation, technical strength and adaptability, which has enabled some to gain global market share.
It is also home to several larger listed companies, which have built CEE-wide networks, such as Erste Group Bank. Recent years have seen growing attention from China and the Far East, particularly in manufacturing. Structural PE activity has historically been limited, partly due to the conservative outlook of family- and foundation-owned companies, but local funds and, increasingly, German PE players are active.
Downside risks come from the unpredictable global trade outlook, given the US’s sometimes hawkish policies towards China and others, as well as tensions between the EU and Russia over the situation in Ukraine.
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