East German economic output remains stuck at about 79 percent of western level, IW institute says

IW researchers described the development as a "wirtschaftlicher Stillstand," a phrase used in their analysis to capture the absence of meaningful catch-up growth. According to the institute, the gap between eastern and western economic output has not narrowed significantly for several years, despite repeated policy efforts to boost investment, innovation and wages in the east.

Structural factors behind the stagnation

The IW said structural factors continue to weigh on the eastern economy, including a thinner base of large companies, lower productivity per worker, demographic decline and weaker rates of new business formation. Many eastern regions also struggle to retain young skilled workers, who often move west or to larger cities for study and employment.

A separate IW forecast projects little movement in the index over the medium term unless productivity in the eastern Länder rises substantially. Without such a shift, the institute warned, the five states risk falling further behind as western productivity continues to grow on its own trajectory.

Policy debate set to intensify

Federal and state governments have launched several initiatives aimed at closing the divide, including investment in research infrastructure, support for start-ups and incentives for companies to relocate to eastern regions. The IW's findings suggest that, so far, these programs have not produced the kind of step change in output that would visibly shift the index upward.

Economists at the institute also pointed to the importance of private investment, which they said remains comparatively low in the east. They argue that public transfers alone cannot close the productivity gap and that lasting convergence will require stronger corporate activity, higher capital stock per worker and improved innovation networks.

What the index measures

The IW's Einheitsindex is widely cited in German economic policy debates, particularly around the annual debates over the Solidarpakt successor arrangements and federal-state financial equalization. The latest reading is likely to renew discussion over whether existing instruments are sufficient or whether new approaches are needed to address the persistent east-west divide.

Researchers cautioned that the 79-percent figure is an aggregate measure and masks significant differences within the east, with some metropolitan areas performing considerably better than rural regions. They also noted that progress in individual indicators, such as employment rates, does not always translate into the output gap closing at the same pace.