Business World

Monday 23 October 2017

Unexpected unemployment rise in Germany sparks fears of slowdown

German Chancellor Angela Merkel
German Chancellor Angela Merkel

Jana Randow and Alexander Kell

German unemployment unexpectedly increased for the first time in six months amid signs of a slowdown in Europe's largest economy.

The number of people out of work rose by a seasonally adjusted 23,937 to 2.905 million in May, the Nuremberg-based Federal Labour Agency said yesterday. Economists had forecast a decline of 15,000. The adjusted jobless rate was unchanged at 6.7pc, the lowest level in more than two decades.

German business confidence decreased this month on concern growth will slow as the 18-nation euro area, the country's biggest export market, struggles to sustain its recovery.

The Bundesbank has said the nation's economic expansion this quarter is unlikely to match the pace of the first three months, which was boosted by unusually warm weather.

"The mild winter, which had flattered German economic data a bit in the first quarter with strong gross domestic product growth and job-market gains, is now striking back," said Christian Schulz, senior economist at Berenberg Bank in London. "Germany's labour market remains on a strong positive trend despite the slight May setback, however."

The German economy expanded 0.8pc in the first quarter, up from 0.4pc in the previous three months, after the warmer weather boosted construction and domestic spending.

The number of unemployed in May rose by 16,018 in western Germany and 7,919 in the eastern part of the country, yesterday's report showed. The total number of jobless declined by 24,798 the previous month.

Germany's DAX index of stocks was little changed during trading, hovering near a record high.

"We have to acknowledge that the peak of economic momentum is behind us," said Andreas Scheuerle, an economist at Dekabank in Frankfurt. "We've achieved a lot and it'll be difficult to continue at the same speed. But at the moment, everything's still fine, economically speaking."

Germany's labour market is still at odds with those of its peers in Europe's south and the currency bloc as a whole. More than one in four people in the Spanish workforce is without a job, and unemployment in the euro area was 11.8pc in March, just below an all-time high.

Joblessness across the region is one sign of what European Central Bank President Mario Draghi identified this week as "a slowly consolidating recovery" that isn't strong enough to boost prices to a level policy makers are comfortable with.

Inflation has remained below 1pc since October, compared with the central bank's goal of just under 2pc.

ECB data yesterday showed bank lending in the euro area shrank by 1.8pc in April from a year earlier, the 24th straight month of declines. Lending increased 0.2pc from March.

The central bank is working on a package of measures to fuel price growth and stimulate the economy that may include a negative deposit rate, liquidity measures or asset purchases.

Officials will gather in Frankfurt on June 5 for their next policy meeting.

"While the April data does add a little bit of evidence that the economic recovery is gradually feeding through to the credit cycle, most ECB members will see plenty of room to ease policy further without stoking inflation," said Mr Schulz. "The recovery remains a largely creditless one as households and companies resort to cash reserves they built during the recession for their purchases and investment." (Bloomberg)

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