East German Economy Gradually Recovers, According to Ifo Dresden

The economy in East Germany is showing signs of gradual recovery, as reported by researchers from the Ifo Institute in Dresden. In their summer forecast, experts indicated that the region has begun to move beyond its economic low point.

For 2025, a modest growth rate of 0.3 percent in economic output is anticipated, with a more optimistic projection of 1.3 percent growth for the following year. This positive outlook is largely attributed to the fiscal measures planned by the federal government, though the benefits in East Germany, including Berlin, are expected to be less pronounced compared to those in Western German states due to structural differences.

Key sectors expected to drive this growth include construction and services. However, researchers have pointed out that the planned increase in military spending may not significantly benefit the East, as the defense industry has a smaller presence in the region. Consequently, a large portion of the proposed military expenditures is likely to be concentrated in Western Germany.

Infrastructure spending is anticipated to provide some positive impulses for the region. Nevertheless, due to lengthy planning processes and a shortage of skilled labor, the immediate benefits to the East German economy may be limited.

In terms of employment, the forecast remains cautious. The job market is expected to experience a slight decline of 0.1 percent in 2025, with a modest recovery of 0.2 percent projected for 2026. This subdued job growth reflects the lingering effects of the economic downturn experienced in prior years, coupled with challenging demographic trends.

In contrast, the broader German economy is seeing a more favorable outlook. The Ifo Institute in Munich has recently revised its economic forecast for 2026, predicting a growth of 1.5 percent in the gross domestic product, nearly double the initial estimate of 0.8 percent. The forecast for the current year has also been adjusted upwards from 0.2 percent to 0.3 percent.