Economic convergence between eastern and western Germany slows to a crawl

Economic convergence between eastern and western Germany has stalled significantly, according to an unpublished study by the Institute for the German Economy (IW). In 2025, the five eastern federal states reached nearly 79 percent of the western economic level, rising only marginally from roughly 78 percent the previous year, as reported by the Rheinische Post.

The IW-Einheitsindex tracks the catch-up process

The findings are based on the IW-Einheitsindex, an analytical index that has tracked the post-reunification economic catch-up process since 1990. The index evaluates a broad basket of structural data rather than a single metric. It incorporates regional economic output per capita, productivity growth, the local capital stock, the share of highly qualified personnel in research and development, workforce participation rates, and both unemployment and self-employment figures.

Declining labor market participation in eastern states

While some macroeconomic figures show slight upward ticks, eastern Germany continues to fall backward across several foundational indicators. Labor market participation provides a clear example of the cooling trend. Measured against the total population, eastern participation stood at nearly 89 percent of the western benchmark in 2010. By 2025, that figure dropped to roughly 85 percent, revealing an ongoing contraction in the available regional workforce.

Eastern capital stock fails to close gap with west

Capital investment has also lost momentum across the eastern federal states. The capital stock metric—which measures the total value of machinery, factories, infrastructure, and buildings per capita—has barely closed the gap over the last 15 years. In 2010, the eastern capital stock sat at roughly 77 percent of western levels. By 2025, it crept up to barely 79 percent. Meanwhile, personnel allocations for research and development remain severely restricted, reaching only about 46 percent of western levels.

High-profile industrial anchors contrast with demographic headwinds

The stagnation persists despite high-profile industrial victories in the region. Observers frequently point to major regional investments, including the establishment of Tesla’s plant in Grünheide, Brandenburg, the chip cluster in Dresden, and accelerated regional investments in renewable energy. However, the study warns that these bright spots are heavily overshadowed by systemic demographic pressures. Researchers noted that the population in eastern Germany is projected to shrink by more than a fifth by 2045 in scenarios without immigration—a contraction significantly steeper than anything projected for western Germany.

Political friction surrounding skilled labor and retirement age

The study cautions that regional political shifts and policy debates threaten to exacerbate the economic outlook. Researchers highlighted that recent election results have cast doubt on public and political openness toward welcoming foreign skilled labor. Economic analysts argue that demands from eastern state premiers to preserve the early retirement policy known as the "Rente mit 63" provide counterproductive headwinds. Given the severe contraction in its working-age population, eastern Germany remains acutely dependent on keeping experienced workers in the labor force longer rather than encouraging early exits.

Frequently asked questions about the IW study

What specific economic indicators does the IW-Einheitsindex measure?

The IW-Einheitsindex measures economic output per capita, productivity development, the physical capital stock of the economy, the proportion of highly qualified personnel in research and development, workforce participation, and unemployment and self-employment quotas.

How large is the gap in research and development personnel?

According to the IW study data reported by the Rheinische Post, eastern Germany reaches only about 46 percent of the western level when it comes to personnel dedicated to research and development.

What demographic decline is projected for eastern Germany?

Population forecasts cited in the study indicate that without immigration, the population in eastern Germany will shrink by more than 20 percent by the year 2045, outpacing projected demographic declines in western Germany.