Economy in Eastern Germany To Overtake the West

Paradoxically, the floods that ravaged Central Europe in August may be responsible for increased economic growth in the Germany's eastern states.

According to the autumn prognosis of Germany’s leading economic think tanks, the formerly communist east’s gross domestic product will grow by 2.3 percent next year, while west German regions can only bank on GDP growth of 1.3 percent.

This development, they say, may to a large extent be the result of the summer's devastating floods.

After the rain

Just months ago, rains in Central Europe caused the worst flood catastrophe in Germany in years. The eastern regions have suffered an estimated 23 billion euro ($22.45 billion) in damage, according to the German magazine "Der Spiegel."

Between the German government, the states and the European Union, some 10 billion euro have been pledged to the country’s flood-damaged east. In the course of this year and next, some 13.5 billion euros will have been pumped into rebuilding the region.

Beneficiaries of rebuilding

The construction, industry and service sectors, particularly transport firms, are expected to be the main beneficiaries of rebuilding. It comes as welcome news for construction firms.

Six weeks ago, Germany’s construction industry association (HDB) predicted a 5.2 percent decline and the loss of 80,000 jobs in construction before the end of the year.

In the short-term, things are looking up in Germany's eastern states. The floods have brought in a wave of new cash for the region, and the local economy has shown itself to be less susceptible to the global economic flu than Germany's western states due to lower reliance on exports.

Back to the drawing board

However, the new economic stimulus is expected to be short-lived. Once the flood-affected areas are rebuilt, the region will find itself in the same position it was in before the rains. Despite the positive news for Germany's east, the recently released study by Germany's leading economists also indicates that unemployment, at its highest in eastern Germany, will continue to rise next year along with prices and employment costs.

In addition, growth in Germany's eastern states is still low compared to the west, with GDP reaching only 60 percent of the western German level due to a dearth of industry.

Manfred Stolpe, the government’s new minister responsible for "Aufbau Ost," the program to redevelop the states that once belonged to East Germany, former has his work cut out for him.

Last week he told a German public radio station: "There is a lot to do."