The 2026 Competitiveness Report for Eastern Germany delivers a stark warning: the region's economic convergence with western Germany is no longer assured. While Poland and other Central European neighbours enjoy dynamic growth, new industrial plants, and rising investment, large parts of eastern Germany are struggling with a shortage of skilled workers, weak private investment, and demographic decline.
Joachim Ragnitz, deputy head of the ifo Institute in Dresden and author of the study underpinning the report, put it bluntly: “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.” The report, presented at the Federal Finance Ministry in Berlin, paints a sobering picture of a region that has been catching up for three decades but now risks falling behind once more.
Investment and Demographics: The Twin Deficits
Between 2019 and 2023, private investment per inhabitant in eastern Germany reached only about three-quarters of the western German level. Excluding housing and public infrastructure, that figure drops to roughly two-thirds. Meanwhile, demographic change is accelerating: by 2035, the working-age population in eastern Germany is expected to shrink by around seven percent, with some regions hit far harder. In Thuringia and Saxony-Anhalt, the labour force could contract by 25 percent over the coming years. “One in four people will in future be missing when it comes to economic output and filling jobs,” the study’s authors explained. In Thuringia, more companies closed last year than were newly founded.
Elisabeth Kaiser, the federal government's commissioner for eastern Germany, called for continued tax incentives. “Investment in eastern Germany's economic future provides economic security and future prospects for people on the ground,” she said. “Only if eastern German locations are also strengthened will the overall economic success of the country be boosted.”
Poland’s Policy Flexibility vs. German Rigidity
The contrast with Poland is instructive. Poland has achieved significant growth rates and attracted major industrial investments in batteries, logistics, and automotive manufacturing. For Ragnitz, the key difference lies in structural flexibility. “Poland has it easier because it can shape its regulatory framework more freely than is possible in eastern Germany,” he told Euronews. Special economic zones with higher subsidies, lower wages, and lighter regulation have made Poland a magnet for investment. Eastern Germany, by contrast, remains fully integrated into Germany’s legal and collective bargaining systems, making lower wages or special arrangements politically and socially difficult.
Labour mobility within Germany also works against the east: if wages were to fall, migration to the west could accelerate. Poland, shielded by language barriers and national borders, does not face the same pressure.
After reunification, eastern Germany did benefit from temporary special arrangements—higher subsidy rates, faster approvals, and extensive investment aid. But many of these instruments were gradually phased out, partly to restore a uniform German legal framework and partly due to EU state-aid rules. Ragnitz calls this an “implementation problem” in Germany. As early as 2002, economists proposed special economic zones for the east, but politicians rejected the idea. “Today it is probably too late to introduce a comparable model,” Ragnitz says.
Flagship Projects, Uneven Benefits
Eastern Germany has landed several multi-billion-euro projects: the Tesla factory in Grünheide (Brandenburg), the expansion of the Dresden semiconductor hub by Infineon and ESMC, and CATL’s battery plant near Erfurt. Yet Ragnitz notes that “large parts of eastern Germany are seeing little benefit from them.” A survey of eastern German companies reveals that many see opportunities but complain about excessive bureaucracy, rising energy costs, and a lack of political support.
Still, these flagship projects demonstrate that the region can be competitive, offering large sites, comparatively cheap energy, and proximity to research institutions. The challenge is to spread those benefits more broadly—and to reverse the demographic and investment trends that threaten to leave much of eastern Germany behind.
As the report makes clear, the gap between east and west is no longer narrowing. Without a renewed policy push, it may soon start to widen again.
