The Visegrad Countries – An Investor’s Outlook

The four Visegrad states, the Czech Republic, Hungary, Poland and Slovakia, are often considered by investors to be business-friendly. Though not a political bloc or union with shared institutions, markets, and economies, there are economic, political, and social similarities making it useful from an investor's standpoint to regard them as a group.

An Investors’ Walhalla

Visegrad states have drawn foreign investment over the last 20 years with low costs, skilled labor, EU access, and incentivizing policies. This influx of money has modernised their economies, and boosted sectors like automotive, machinery, electronics, pharmaceutics, and IT. With their per capita GDP being mid-tier in the EU and in the top 40 worldwide, these countries move toward a projected 2% growth, in 2025, making them some of the EU's fastest growers.

The most important sectors of the Visegrad Four’s economies today are industry and manufacturing, with the automotive industry being the most important by far. Czechia excels in machinery and precision manufacturing, Hungary in pharmaceuticals and electronics. Poland leverages its vast market for IT, manufacturing, and construction, while Slovakia ranks among world leaders in per capita car production. Their proximity to Germany has historically positioned them as suppliers, now turning into prime relocation spots for German firms like Audi, BMW, Mercedes, and Volkswagen, that have long been expanding their production capacity in all Visegrad countries. The decisive factor has been a mix of skilled labor, low production costs, competitive taxes, and geography.

More recently, these pull factors have been complemented by push factors generated by Germany's Energiewende-policies, which have in part brought about its deindustrialisation. Visegrad countries' energy prices–the deciding factor in many industries–are considerably lower than Germany’s. Hungarians, for example, enjoy the luxury of low electricity costs, paying a mere 12 ct per kWh, while Germans shell out 40. The gap in natural gas prices is even more striking: Hungary has rates of 2.5 cents per kWh, while in Germany it’s almost tenfold more, 22 cents per kWh. And as all Visegrad states are in favour of nuclear energy, it is to be expected that the competitive advantage of energy stability and low prices will extend further. Renowned German names like Bosch, Siemens, and Miele are now moving larger portions of their production to the Visegrad countries.

But Where are the People?

Years of foreign investment have fueled industrial growth in the Visegrad countries, yet these are now grappling with structural labor shortages. While labor shortages in this case indicate a potential for economic growth, its realisation hinges on whether these shortages can be covered. Unlike Germany, France, or Italy, the Visegrad Four reject immigration as a solution, and they are particularly notorious within the EU for forming a strong front on this issue. Their alternative lies in trying to solve the problem with their own resources: strengthening their education systems to produce the needed skilled labor, as well as encouraging the return of citizens currently working abroad. Particularly Poland and Hungary are affected by the many expatriates who have left their home countries for work (a problem which barely concerns Slovakia and Czechia): over 700,000 Hungarians work abroad (ca. 15% of its total workforce), for Poland, it's about 1.5 million (ca. 9% of its workforce). More and more are now returning, however, due to improved economic conditions in their home countries.

Whether the Visegrad Four can actually meet their labor shortage with homegrown talent is doubtful, though. All of them share the EU's demographic woes: low birth rates, an aging populace (20% over 65), and a shrinking domestic workforce. Hungary and Poland are noted for pursuing natalist policies, but it is doubtful that this fundamental demographic problem can be solved this way. At least, it is not a short or medium term solution, as it takes 25 years for a child to grow up and be educated for a high-skilled job. On the other hand, the quick fix tried by Germany and others—mass migration—brings its own problems. Automation probably won’t be of help, either. Particularly in sectors like manufacturing and construction, human skill and adaptability remain irreplaceable. The current level of robotics technology is far from advanced enough to jump in and replace these jobs. More than likely, it will take many more years for automation to evolve to the point where it can genuinely address these problems.

The Road Ahead

Over the last two decades, the Visegrad Four have turned themselves into attractive markets for investors. Their future now hinges on evolving into innovation hubs, high-tech manufacturers, and IT specialists, while tackling labor and demographic challenges. The task: reduce reliance on foreign capital, boost innovation, and expand education for high-skill jobs—essentially, increasing economic resilience. Investors must scrutinise policy directions but also navigate the political and social landscape, while remaining wary of volatility, corruption, and red tape. Sustainable growth requires a fair distribution of economic gains to ensure political stability.

Longer-term risk also lies in the complexities of regional politics and in the Visegrad nations’ political status within the EU. With their opposition to mass migration, they have for years been a thorn in the side of an increasingly annoyed EU. Hungary, in particular, with Viktor Orbán's nationalist stance, is regularly cast as the EU's black sheep. Three of the Visegrad Four retain their own currencies, thereby evading some ECB policies and attracting investors with higher yields. Hungary's interest rate stands at 6.5%, Poland's at 5.75%, and Czechia's at 4%, while Slovakia adheres to the ECB's current rate of 2.9%. However, this independence also introduces significant currency risk, e.g. currency depreciation eroding investment returns.

In an era of economic disruption, stagnation is fatal. All industry- and service-based economies must focus on constant renewal. The Visegrad states must now push for automation, digitalisation, flexibility, and higher education. Success here means investors could reap rewards from a dynamic, resilient region with significant growth potential.

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