German jobless hits three million as recession bites

7th January 2009, Comments 0 comments

While the German jobs market has shown surprising resilience in the face of the economic crisis, data is now showing the situation is changing for the worse.

Berlin -- German unemployment has risen for the first time for 33 months with the total number of jobless now above three million, data showed on Wednesday as the recession in Europe's economic powerhouse begins to bite.

Adding further pressure on Chancellor Angela Merkel's government to counter what is forecast to be Germany's deepest postwar slump, the labor office said the number of jobless had risen in December by 114,000 to 3.1 million.

The unemployment rate now stands at 7.4 percent, a rise of 0.3 percentage points. Economists said up to 10 percent of the workforce could be without a job by the time Merkel stands for a second term in elections on September 27.

Even adjusted for seasonal fluctuations, unemployment in Europe's biggest economy rose by 18,000 from the level in November -- the first such increase since February 2006.

"2008 was the best year for the jobs market," the head of the labor office, Frank Weise, said in a statement: "Nevertheless, the December data shows that the economic crisis has reached the job market. As a result, our optimism for 2009 has also been dampened."

In recent months, the German jobs market has shown surprising resilience in the face of the economic crisis but officials and analysts warned that the trend had now definitely turned.

The labor office acknowledged that the "positive underlying trend" of the jobs market had now changed.

Alexander Koch, an economist at Unicredit, said December's data marked a "turning point" for Germany's labor market and predicted more people would lose their jobs as the economy spirals deeper into recession. "The trend reversal cannot be halted and the negative dynamic on the labour market should pick up considerable momentum in the further course of this year," Koch said.

Ralph Solveen from Commerzbank concurred: "The recession has now reached the German labor market too."

Germany, the world's biggest exporter, is already mired in an economic recession and experts believe the situation is set to deteriorate sharply before it gets better.

In a bid to stave off the worst effects of the downturn, Merkel's "grand coalition" is due later this month to launch a second stimulus package worth some 50 billion euros (70 billion dollars).

This follows an initial package worth over 30 billion euros (40 billion dollars) agreed in November last year that was deemed too puny.

Berlin was roundly criticized for acting too slowly and too cautiously to counteract the financial crisis, with Merkel dubbed "Madame Non" in some European quarters.

Efforts to hammer out a coherent response to Germany's economic woes have been partly hamstrung by the fact that the two parties in Merkel's grand coalition are already jostling for position ahead of elections on September 27.

The year ahead is expected to bring more misery on both the jobs and the growth front, meaning the economy is likely to be one of the main battlegrounds in the election campaign.

Jennifer McKeown from Capital Economics said that a combination of weak consumer spending and falling global demand for German goods could lead to a slump in Germany's economic output of two percent in 2009.

She added that unemployment could rise towards the psychologically important 10 percent figure during the year.

In mid-December, Weise himself warned that German unemployment could soar to 3.6 million within six months.

"By the second half of next year, it is possible, on the basis of current data, that the number out of work will reach 3.6 million," he was quoted as saying by German magazine Focus.

Richard Carter/AFP/Expatica

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