The 2026 Competitiveness Report for Eastern Germany warns this year that “the convergence process is in jeopardy”. The new federal states risk being left behind. Meanwhile, other countries in Eastern Europe, Poland in particular, are managing to use this period to their economic advantage.
While some of those countries have seen dynamic growth, new industrial plants and rising investment in recent years, many regions of eastern Germany are struggling with a shortage of skilled workers, weak investment and demographic pressures.
“The convergence process in eastern Germany is no longer something that can be taken for granted. Unless politics and business take decisive countermeasures now, the gap threatens to widen again,” says Joachim Ragnitz, deputy head of the ifo Institute in Dresden. He is the author of the ifo study on which the competitiveness report is based. It paints a sobering picture: the process of catching up with western Germany that has been under way for decades is stalling – and the gap could start to widen again.
Experts warn of widening economic gap
According to the competitiveness report, eastern Germany is above all lacking private investment and qualified workers. Between 2019 and 2023, private investment per inhabitant reached only around three-quarters of the level in western Germany. Excluding housebuilding and public infrastructure, the figure was just about two-thirds.
Then there is demographic change: by 2035 the number of people of working age in eastern Germany is expected to fall by around seven percent, and even more in some regions. In the federal states of Thuringia and Saxony-Anhalt, the labour force potential will shrink by 25 percent over the coming years, the study’s authors explained at a press briefing at the Finance Ministry in Berlin. One in four people will in future be missing when it comes to economic output and filling jobs. Ultimately this will also affect production across the board. In Thuringia, more companies closed last year than were newly founded.
Without determined countermeasures, the gap between eastern Germany and the rest of the country threatens to widen again, warns Ragnitz. Tax incentives are still needed, said the federal government’s commissioner for eastern Germany, Elisabeth Kaiser. “Investment in eastern Germany’s economic future provides economic security and future prospects for people on the ground,” Kaiser said. Only if eastern German locations are also strengthened will the overall economic success of the country be boosted.
Poland benefits from greater economic-policy flexibility
The problem becomes particularly clear when compared with Poland. The neighbouring country has achieved significant growth rates in recent years and attracted numerous industrial investments, for example in batteries, logistics and the automotive sector.
For Dresden-based economist Joachim Ragnitz, structural differences are crucial. Poland has far greater room for manoeuvre in economic policy than eastern Germany, Ragnitz tells Euronews.
“Poland has it easier because it can shape its regulatory framework more freely than is possible in eastern Germany,” says Ragnitz. Special economic zones with higher subsidies, lower wages and lighter regulation have made it easier to invest there. Eastern Germany, by contrast, is fully integrated into Germany’s legal and collective bargaining systems. Lower wages or special arrangements are hardly feasible politically or socially.
In addition, labour mobility within Germany is significantly higher: if wages in the east were to fall, migration to the west could increase further. Because of language barriers and national borders, Poland has not had to contend with these factors to the same extent.
Early special subsidies were gradually wound down
After reunification there were, in fact, temporary special arrangements for eastern Germany: higher subsidy rates, faster approval procedures and extensive investment aid.
According to Ragnitz, many of these instruments were gradually phased out again. The aim was, on the one hand, to return to a uniform German legal framework, but in some cases the levers were also removed because of EU legal requirements. Ragnitz speaks of an “implementation problem” in Germany.
As early as 2002, economists preparing an expert report for the Federal Finance Ministry again proposed special economic zones for eastern Germany. Politicians rejected the idea. Today it is probably too late to introduce a comparable model, says Ragnitz. Support for major industrial settlements can, in his view, provide some relief. However, there is no targeted steering of these projects towards eastern Germany.
Flagship projects, but major regional disparities
Eastern Germany has in fact recently succeeded in attracting several multi-billion-euro industrial projects such as the Tesla factory in Grünheide in Brandenburg, the expansion of the Dresden semiconductor hub by Infineon and ESMC, or CATL’s battery production near Erfurt, “but large parts of eastern Germany are seeing little benefit from them,” says Ragnitz. This is also reflected in the current mood among businesses: according to a survey of eastern German companies, many do see economic opportunities, but complain about excessive bureaucracy, rising energy costs and a lack of political support.
Yet in the view of many economists, these major projects demonstrate that eastern Germany can certainly offer competitive locations. Advantages include the availability of large sites, comparatively cheap energy and proximity to research institutions.
East-west: wealth gap of 75 percent
While the former east-west divide is no longer so sharply defined and both the old and the new federal states now include structurally weak and strong regions, there is still a massive difference when it comes to wealth. Eastern German households have a median net worth of only about one quarter of that in the west, the study’s authors found.
“Wealth acts like an economic springboard,” notes Achim Oelgarth, managing director of the East German Banking Association, at the press briefing at the Finance Ministry. According to the ifo report, the build-up of private assets is central to economic dynamism, individual opportunities for advancement and regional stability.
In 2023, however, the median wealth of eastern German households stood at around 35,900 euros, compared with 143,200 euros in the west. And the gap is tending to grow further. The study’s authors cite, among other things, lower incomes, lower home ownership rates and less business wealth and inheritances. They call for improved financial education, as building up assets nowadays is also essential for pension provision.
Eastern Germany lagging behind the national trend
While the German economy as a whole is at least showing slight signs of stabilisation after difficult years, developments in the east remain more fragile. The ifo business climate index for eastern Germany deteriorated markedly in the spring and has only recently recovered slightly.
Industry, construction and retail in particular remain under pressure. At the same time, many regions in eastern Germany are suffering more from outward migration and skills shortages than western states.
In 2025, GDP in the eastern federal states (excluding the city states) was around 85 percent of the western German average. Ten years earlier it was 78 percent; in 1991 per capita GDP stood at 34.5 percent. One can therefore no longer speak in general terms of a systematic disadvantage for eastern Germany, the study’s authors explained at a preliminary press briefing.
Co-editor of the competitiveness report Frank Nehring therefore spoke of the need to move the narrative on. In future we should no longer talk about a catching-up process, but rather about shaping a region of the future. We need to be bold, but not reckless.
From Sunday and for three days, industry representatives and politicians will meet in Bad Saarow at the East German Economic Forum. The central question will be how new growth impulses can be generated. Some of those impulses are expected to come from Poland, for instance in a keynote speech by Professor Marcin Piatkowski of the University of Warsaw. Piatkowski is a former senior economist at the World Bank and has recently analysed Poland’s economic success since the 1990s in a book. He describes Poland as one of Europe’s underestimated growth stories. Central to this are the roles of EU integration, institutions, education, industrial policy and economic transformation.
Federal Economy Minister Katherina Reiche and German Chancellor Friedrich Merz will also take part in the discussions on site.
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