According to a study by the Institute of German Economics (IW), reported by the “Rheinische Post”, the East German economy has not managed to catch up with the West German economy in the last five years. The IW’s new single index, which tracks the recovery process since 1990, suggests that by 2025, the five eastern federal states will only reach nearly 79% of the West’s level, up marginally from about 78% recorded in the previous year.
The study highlights that East Germany falls short in several key indicators. The labor force participation rate, for instance, has decreased; while the East achieved nearly 89% of the West’s rate based on the total population in 2010, the projection for 2025 is only slightly better than 85%. Furthermore, capital formation has stagnated. In terms of the value of machinery, factories, roads, and buildings per capita-the capital stock-the East has barely made progress in the last 15 years. Its rate was held at just under 77% of the West’s level in 2010, rising to just over 79% in 2025. When looking at personnel in research and development, the East reaches only about 46% of the Western level.
Despite these challenges, the eastern states have achieved various success stories, such as the establishment of the Tesla factory in Grünheide, the development of world-leading chip clusters in Dresden, and the expansion of renewable energies.
However, the demographic structure presents a major pessimistic outlook. Population projections suggest that without immigration, the eastern population will shrink by more than one-fifth by 2045, a significantly steeper decline than what is expected in the West.
This demographic reality makes the eastern states even more dependent on foreign skilled labor than their western neighbors. This reliance on immigration is further complicated by the recent political voting results, which cast doubt on this opening to new arrivals. Additionally, the local economy is unlikely to receive support from the initiatives proposed by regional ministers, such as maintaining the retirement age at 63. The IW notes that due to its population structure, the East urgently needs to retain experienced workers in the job force for longer periods.
