Ifo Dresden: East German economy gradually recovering

According to the Dresden Ifo Institute, the East German economy is gradually recovering. In their summer forecast, the scientists saw the economic low point passed. Economic output in eastern Germany is forecast to grow by 0.3 percent this year and 1.3 percent next year.

The Ifo researchers attribute the boost primarily to the planned fiscal measures of the federal government, even if they will be lower in eastern Germany (including Berlin) than in the western German states due to structural peculiarities. Stimulus is expected above all for the construction industry and service providers.

East can hardly benefit from increase in military spending

The East will benefit less from the planned increase in military spending, according to another forecast by the researchers. The arms industry is less important in eastern Germany, meaning that a large part of the planned military spending is likely to have an impact primarily in the western German states, explained economist Joachim Ragnitz.

Infrastructure spending provides impetus

"The planned infrastructure spending will have a positive effect. However, in view of the enormous planning lead time and the shortage of labor, the East German economy will benefit little from this in the short term," added Robert Lehmann from the Ifo Institute in Munich.

"The labor market is still bobbing along," said Ragnitz. A decline of 0.1 percent is expected in the east in 2025, followed by an increase of 0.2 percent in 2026. Momentum on the labor market remains subdued due to the weak economic phase of recent years and the unfavorable demographic conditions.

Last week, the Munich-based Ifo experts significantly raised their economic forecast for the German economy for 2026. Gross domestic product could increase by 1.5 percent, which would be almost twice as much as the originally assumed 0.8 percent. Ifo raised its forecast for this year very slightly from 0.2 to 0.3 percent.