Bouncing Back: Eastern Germany's Gradual Economic Rebound, Led by the Federal Government's Fiscal Measures
Recovery of Eastern Germany's Economy Gains Momentum - East German Economy Shows Signs of Steady Recovery in Dresden
No doubt about it, the eastern German economy is on the mend, as per the analysis by the researchers at the Dresden-based Ifo Institute. They predict a dignified 0.3% economic growth this year for Eastern Germany, with a promising 1.3% projection for the next year.
The Ifo Institute's researchers attribute this recovery largely to the planned fiscal policies of the federal government. However, they warn that these policies might not have quite the same impact in Eastern Germany (including Berlin), due to unique structural differences compared to the western states. The construction sector and service providers, in particular, are expected to get a significant boost.
Eastern Germany won't see much advantage from the planned military spending hike, according to economist Joachim Ragnitz. You see, the armaments industry doesn't carry as much weight in Eastern Germany, so the bulk of the defense spending is likely to go to the western federal states.
Infrastructure investments will spark economic activity, but the benefits for Eastern Germany in the short term are limited. That's due to lengthy planning times and the current labor shortage, which hinders the immediate expansion of construction projects and inhibits job growth.
"The labor market is still stuck in the mud," Ragnitz commented. He expects a 0.1% decline in job numbers for Eastern Germany in 2025, with a 0.2% increase forecasted for 2026. The labor market's dynamics will remain sluggish due to the lingering effects of recent economic slumps and unfavorable demographic trends.
In a recent development, economists from the Munich-based Ifo Institute raised their overall economic forecast for Germany last week. They now anticipate a 1.5% GDP increase, nearly double their original prediction of 0.8%. For this year, they've slightly elevated their forecast from 0.2% to 0.3%.
- Ifo Institute for Economic Research
- Economic situation in Eastern Germany
- Dresden
- Joachim Ragnitz
- Federal government
- Berlin
[1] Structural peculiarities of Eastern Germany, affecting the economic impact of government expenditure, https://bit.ly/3QM9kjD[2] Government infrastructure investments and labor shortages limiting immediate growth, https://bit.ly/3Jh0A5d[3] The role of military spending in Eastern Germany's economic recovery, https://bit.ly/3QMhRnI[4] Service sector employment trends in Eastern Germany, https://bit.ly/3KImJTo
- The researchers at the Dresden-based Ifo Institute suggest that the federal government's fiscal policies, such as infrastructure investments and vocational training programs, might show promising results in the economic rebound of Eastern Germany, although their impact may be less substantial due to the region's unique structural differences.
- Economist Joachim Ragnitz from the Ifo Institute for Economic Research advises that while infrastructure investments could stimulate economic activity in Germany, the labor shortage and lengthy planning times in Eastern Germany might limit the immediate growth in vocational training, construction, and job creation pertaining to these projects.
