Ifo forecast: East German economy growing more slowly than expected

After two difficult years, the East German economy is getting back on track more slowly than expected, according to the Dresden Ifo Institute. Economic output is expected to increase by 0.4 percent in 2025 and 0.7 percent in the coming year, according to this year's winter forecast. In the summer, the experts had still expected gross domestic product to grow by 1.3 percent in 2026.

The economists cited demographic change and the shortage of skilled workers as the reason for the weaker recovery. The effect of the German government's planned economic measures would be noticeably curbed. Stimulus is expected above all for the construction industry and service providers.

In Saxony, economic output will almost stagnate this year, with a slight increase of 0.1 percent, they said. An increase of 0.6 percent is expected for the coming year.

Number of people in employment falls

The economic weakness of recent years has also had a noticeable impact on the labor market, according to the Dresden experts. The number of people in employment is therefore likely to fall in both eastern Germany (including Berlin) and Saxony, while it is stagnating throughout Germany. A decline of 0.3 percent is expected in the east this year and 0.1 percent in 2026.

Industry weakens

According to the forecast, industry will continue to be burdened by US tariffs and increased competitive pressure from China. As a result, economic activity will continue to decline in the coming year. In addition, large parts of the industry are under considerable pressure to transform.