German Economy

Economic Skies Darkening for Germany

Unemployment jump in July shows 'signs of the first effects of deteriorating economic conditions' in the eurozone's strongest economy.

Unemployment in Germany rose in July as the eurozone debt crisis increasingly casts a pall over Europe's biggest economy, official data showed on Tuesday.

Headline unemployment rose sharply, with the total number of people out of work up by 66,800 in July from June to stand at 2.88 million, according to the Federal Labor Agency, responsible for compiling the monthly data.

The headline jobless rate, which measures the proportion of people registered as unemployed against the working population as a whole, rose to 6.8% in July from 6.6% in June.

Unemployment tends to rise in the summer as school-leavers sign on the dole and companies close for the holidays but even adjusted for such seasonal factors, unemployment is on the rise in Germany, according to data published separately by the German central bank or Bundesbank.

The seasonally adjusted jobless total rose by 7,000 to 2.89 million in July. It was the fourth consecutive monthly increase and brought the total to its highest level since December 2011.

The adjusted jobless rate was unchanged at 6.8%, the Bundesbank calculated.

Labour agency chief Frank-Juergen Weise, presenting the monthly jobless at a regular news conference in Nuremberg, said the rise in unemployment in July was "primarily due to seasonal factors."

Nevertheless, "the risks for the German economy are on the increase," he cautioned.

Signs of Weakening

"The underlying trend on the labor market remains positive but there are signs of weakening," Weise added.

Earlier, other data showed a fall in retail sales in Germany for the third month in a row in June.

This could prove worrying since it has been largely strong domestic demand -- as reflected in robust household spending and historically low unemployment -- that has made Europe's top economy largely immune to the worst of the crisis.

ING Belgium economist Carsten Brzeski said that with high levels of employment, slowing inflation and recent wage increases, "the labor market should continue to be 'the' crucial driver of domestic demand this year.

"To some extent, the labor market has been Germany's active immunization against the ongoing eurozone crisis. However, signs that this immunization is fading away are hard to miss," the analyst said.

Businesses are downscaling recruitment plans and employment expectations in the manufacturing industry have dropped to the lowest level since April 2010.

"All in all, the German labor market is clearly losing momentum. Given the high level of employment, there is no need to panic. However, indications are increasing that light-hearted times are coming to an end," Brzeski said.

Newedge Strategy analyst Annalisa Piazza agreed.

"Signs of the first effects of deteriorating economic conditions are starting to emerge," she said.

"Indeed, business surveys show more caution in hiring plans as companies need to face the effects of falling demand in the coming months."

Natixis economist Constantin Wirschke said that despite the emerging slowdown, "we expect the labor market to remain fairly stable for the rest of 2012 and pick up again in a more favorable environment in 2013."

Christian Schulz at Berenberg Bank said that while the euro crisis was having a "dampening effect on the economy and making companies more cautious about hiring ... the healthy labor market should cushion the impact of the crisis on German growth over the next few months."

If the European Central Bank and eurozone leaders "successfully bring the market panic back under control, employment in Germany can continue to grow," Schulz said.

 

-- Simon Morgan, AFP

Copyright Agence France-Presse, 2012

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