This article presents the ifo Institute’s current economic forecast for Saxony and East Germany for the years 2005 and 2006. First, the forecasting method used is briefly explained, whereby the future need for reform of the methodology resulting from the change in official statistics is also discussed. The expected development of the Saxon and East German economy is then outlined using important sub-aggregates and the expected employment development associated with this is presented. Finally, the article provides a brief inventory of the effects of Hartz IV on the development of unemployment figures in Saxony and East Germany.