German unemployment hits seven-year high
4 January 2005, NUREMBERG - The number of people out of work in Germany in December rose to its highest level since 1997 with the jobless rate climbing to 10.8 percent from 10.3 percent, the Federal Labour Office said on Tuesday. While the number out of work in seasonally unadjusted terms jumped by 206,900 to reach 4.464 million in December, the more market sensitive adjusted unemployment number increased by 17,000. This was more than the 10,000 forecast by economists and represented the eleventh monthly i
4 January 2005
NUREMBERG - The number of people out of work in Germany in December rose to its highest level since 1997 with the jobless rate climbing to 10.8 percent from 10.3 percent, the Federal Labour Office said on Tuesday.
While the number out of work in seasonally unadjusted terms jumped by 206,900 to reach 4.464 million in December, the more market sensitive adjusted unemployment number increased by 17,000.
This was more than the 10,000 forecast by economists and represented the eleventh monthly increase in a row.
In seasonally unadjusted terms, the number without work was 149,200 more than the same month last year with that the nation's weak economic growth rate still failing to boost payrolls.
Releasing the data, labour office chief Frank-Juergen Weise pointed to seasonally factors as a key reason for the December increase and warned that the nation's economic growth was still not strong enough to underpin the labour market.
Underscoring the somewhat despondent economic outlook facing the country, the release of the unemployment data coincided with the Berlin-based DIW becoming the latest leading German economic institute to downgrade its 2005 growth outlook.
Instead of two percent, the DIW institute now expects German growth to come in at 1.8 percent next year, which is roughly in line with the government's 1.7 percent growth projection.
Despite German retailers reporting a buoyant Christmas period, economists believe that high unemployment and the raft of economic reforms, including increased healthcare costs and a freeze on pensions, are dampening consumer spending in the country and as a result holding back domestic demand.
German retail sales dropped 3.7 percent year-on-year in October.
The downbeat mood among consumers is also despite this month's introduction of tax cuts totalling EUR 6.5 billion, which forms the final stage of Schroeder's landmark tax reform.
But economists are divided on Germany's growth prospects with some analysts believing that the nation could chalk up a growth rate next year of two percent and others having scaled back their forecasts to below one percent.
The publication of the unemployment data also followed the announcement by several German companies of plans for further lay offs with the record high euro placing additional pressure on the country's industry to cut costs and to avoid taking on new employees.
The release of the December jobless data also came just 24 hours after the formal launch of Chancellor Gerhard Schroeder's latest and possibly most controversial welfare and labour market reform, which he hopes will help to trim the unemployment numbers and spur economic growth rate.
But analysts predict German unemployment could rise possibly as much as between 300,000 and 400,000 in the coming months as a result of the so-called Hartz IV reforms, which are aimed at putting pressure on the long-term unemployed to find work and will result in recipients of social security payments included in the official jobless statistics.
Billed as one of the biggest changes to Germany's social state in a generation, the reforms that came into effect at the start of January mean many people receiving the welfare payments rather than unemployment benefits will now be classified as officially looking for work.
Analysts believe the unemployment figure could rise to 5 million in the first few months of the year before falling gradually during the course of 2005.
"Notwithstanding the big impact on the jobs data of the government changes, the actual state of the labour market remains difficult," said Ralph Solveen, economist with Commerzbank AG.
But despite the grim unemployment tally in December, the federal labour office report contained some good news on the employment front.
While job vacancies increased slightly in December, in seasonally adjusted terms employment in Germany increased 28,000 in October, which is the latest available data.
This was almost double the September increase of 15,000 with the labour office revising up employment data from previous months as the government's moves to draw people off the dole queues, including promoting self-employment, took effect.
A breakdown of the December jobless data showed unemployment in the western part of the country rising by a seasonally adjusted 14,000 and in the former communist east by 3,000.
While the unemployment rate in the west rose from 8.3 percent in November to 8.7 percent in December, the jobless rate in the east increased to 18.5 percent from 17.7 percent.
Subject: German news