Austria is by some margin the most affluent country in CEE/SEE, and one of the wealthiest per capita in Europe. This, combined with its location and first-class infrastructure and social services, have long made it a natural gateway to the region, and it remains arguably its financial centre. Many of the country’s strong domestic companies have become regional champions. The flipside of the country’s state of economic development is that growth is fairly slow, forecast at 1.5% for 2019 and 1.4% for 2020, according to the EC.
Political stability has not been undermined by the collapse in 2019 of a controversial conservative-populist coalition government, and a subsequent snap election.The new coalition government between the conservative People's Party and the Green Party, sworn in at the start of 2020, has a pro-EU and business-friendly agenda.
In 2018-19, Austria saw deals totalling €8.9bn, in third place after Poland and the Czech Republic. Its industrials and chemicals sector alone generated €5.2bn; it leverages high skills, a long tradition of manufacturing, and the country’s location.Other sectors seeing lively activity include real estate and construction, which generated €2.7bn in M&A.
In the coming year, the financial sector is expected to see continued consolidation and the ongoing sale of bad assets.
The Czech Republic has historically been one of CEE/SEE’s most economically developed countries, with strong infrastructure to support a competitive business environment. Economic growth is expected to come in at a respectable 2.5% in 2019 and 2.2% in 2020, according to the EC.
The country ranked second in overall deal value in 2018-19, with €9.7bn of assets changing hands. Dealmaking was dominated by the traditionally strong EMU sector, where – unusually – a 50.04% stake in Innogy Grid Holding changed hands twice in the same year. The asset was sold by Innogy to RWE as part of a larger set of assets swaps between the two German firms, before it was taken over by a consortium led by Macquarie Infrastructure, already the minority shareholder, for €1.8bn.
The PMB industry is another area of strength, which should stand the country in good stead as investors are increasingly seeking pharma and medical asset regionally. Consumer and leisure targets are also attracting attention, thanks to income growth and the strong tourism sector.
Anti-government protests have gained international attention on the thirtieth anniversary of the Velvet Revolution, but generally the country remains highly politically stable. Of greater concern to many businesses is the increasingly acute shortage of labour.
The second-most populous country in CEE/SEE, and the fourth largest in overall GDP, Romania has been something of a sleeping giant. But the past few years have seen stellar economic growth, reaching 7% in 2017. This will moderate to around 4% in 2019/20, still an impressively high rate. The fall of the left-leaning government in 2019 has led to the installation of a right-of-centre government that is expected to be more pro-business but may have limited space to implement new policies before new elections in 2020 or 2021. The re-election of President Klaus Iohannis in autumn 2019 should provide a thread of constancy and help continue the country’s process of strengthening institutions and anticorruption efforts.
Romania ranked highly among respondents for its level of openness to investment and its level of infrastructure. Sectors of particular interest include PMB, where demand for hospitals is growing countrywide, and consolidation is ongoing in the pharmacy segment. Real estate is seeing “tremendous development across all asset classes”, says Bryan Jardine, managing partner at Wolf Theiss Romania, though transport infrastructure continues to lag behind Western European standards; a frustration in a large country at the crossroads of CEE and SEE. Meanwhile, the fragmented banking sector is ripe for consolidation – a process that is edging forward.
Hungary’s right-wing government may be controversial, but its parliamentary majority, renewed in 2018 elections, underpins political consistency. Opposition gains in 2019 local elections suggest possible changes over the longer term, though these are unlikely to lead to radical policy shifts. Investors benefit from a raft of tax breaks, and ongoing government efforts to streamlining licensing and e-services for businesses.
Economic growth has been strong in recent years, and the EU forecasts a rate of 4.6% in 2019, moderating to 2.8% in 2020, partly as EU funding under the current budget tapers down. FDI and EU funds are key economic drivers. The automotive industry in particular has flourished, though greenfield investments by manufacturers present in the country mean that this does not always register in M&A activity. The German economy’s slowdown put a squeeze on the sector in 2019, but investments by some players including BMW are continuing with a view to the longer term, and the components subsector continues to flourish.
Other than slower overall growth and the related fall in EU funding, downside risks to the outlook include tight labour markets, and currency risk, as Hungary seems set on remaining outside the eurozone for the foreseeable future.
Poland is both the largest economy in CEE/SEE and its most populous country. It has also enjoyed unbroken economic growth for almost three decades and is expected to see continued robust growth in 2019 and 2020, of 3.9% and 3.5%, respectively, according to the EBRD. The country generated more deal value than any other in 2018-19, some €11.6bn.
Parliamentary elections in 2019 returned the conservative Law and Justice party with another majority, though the opposition now holds the upper house of parliament and will make a strong challenge in the 2020 presidential election. The party has boosted growth through generous social spending, though it has also increased state involvement in sectors such as banking.
A recent ruling by an EU court opening the door to legal challenges on billions of euros of Swiss franc loans could drive losses for some exposed banks, particularly mid-sized domestic players.
Other sectors attracting attention include energy – Poland operates a major LNG terminal – and infrastructure. Both would be boosted by progress with the Three Seas Initiative, a CEE/SEE development platform championed by Warsaw.