Eastern Germany Is Finally On The Recovery Trail

The fastest-growing former Soviet satellite is eastern Germany, which grew by 6.1% last year after two years of dramatic decline. The biggest boosts to growth came from a 30% rise in real construction spending, half of which reflected infrastructure investment, and from a 12% increase in services output. Factory output, on the other hand, remains in a deep slump, and the true unemployment rate is probably double the 15% official rate if those in government job programs are counted.

The problem facing eastern Germany's reconstruction, say economists at J.P. Morgan & Co., is that it depends on continued huge infusions of transfer payments and investments from western Germany. And that region's deepening recession makes it likely that such cash infusions will slow.