Eastern Germany is at risk of losing momentum in its long-running effort to close the economic gap with the western part of the country, while neighbouring Poland continues to record strong growth and attract rising investment, according to economists and a new competitiveness report.

The 2026 Competitiveness Report for Eastern Germany warns that the convergence process between east and west is “in jeopardy,” with the region facing weaker investment, persistent labour shortages and mounting demographic pressures. Researchers say the gap that narrowed for decades could begin widening again unless urgent action is taken.

Joachim Ragnitz, deputy head of the ifo Institute in Dresden and author of the study underpinning the report, said the situation has reached a turning point. He cautioned that eastern Germany’s economic catch-up can no longer be assumed and may stall without decisive policy and business intervention.

The report highlights that private investment in eastern Germany remains significantly below western levels. Between 2019 and 2023, investment per resident reached only about three-quarters of western Germany’s level. Excluding housing and public infrastructure, it fell to roughly two-thirds.

Demographic change is adding further pressure. The working-age population is expected to decline by around 7 percent by 2035, with sharper drops in some regions. Thuringia and Saxony-Anhalt could lose as much as a quarter of their labour force potential, raising concerns over production capacity and business continuity. In Thuringia alone, company closures outpaced new business formations last year.

Officials and economists argue that a shortage of skilled labour and weak private-sector investment remain central challenges. Elisabeth Kaiser, the federal government’s commissioner for eastern Germany, said targeted tax incentives and continued investment are essential to strengthening long-term growth prospects.

By contrast, Poland has recorded strong industrial expansion in recent years, attracting investment in sectors such as automotive manufacturing, logistics and battery production. Economists say Poland’s flexibility in shaping economic policy has been a key advantage.

Ragnitz noted that Poland can offer tailored incentives and regulatory conditions that are not possible within Germany’s unified legal and wage framework. He said eastern Germany’s integration into national systems limits its ability to compete on costs or design special investment zones.

After reunification, eastern Germany briefly benefited from enhanced subsidies and simplified approval processes, but many of these measures were later phased out due to policy changes and EU rules. Attempts to reintroduce similar frameworks have faced political resistance.

Despite this, several major projects have recently been secured in eastern Germany, including Tesla’s plant in Brandenburg, semiconductor investments in Dresden and battery production facilities near Erfurt. However, economists say these flagship developments have not yet translated into broad regional gains.

Wealth disparities also remain significant. Median household net worth in eastern Germany is around €35,900, compared with €143,200 in the west. Lower incomes, reduced home ownership and fewer inheritances continue to widen the gap.

While Germany’s overall economy shows signs of stabilisation, eastern states continue to lag behind in sectors such as industry, construction and retail. GDP per capita in the east remains about 85 percent of western levels.

Economists say the challenge now is not simply catching up, but redefining the region’s economic role. Attention is expected to focus on new growth strategies at upcoming policy forums, where Germany and international experts, including those studying Poland’s development model, will assess how to revive momentum in the east.