31 May 2006

BERLIN - German unemployment fell by a bigger-than-forecast 93,000 to 4.6 million in seasonally adjusted terms in May, the Federal Labour Agency said Wednesday as a pickup in Europe's biggest economy helped to create jobs.

Economists had forecast a drop in the numbers out of work of 20,000 in May, with seasonally-adjusted unemployment rate edging down to 11 per cent from 11.3 per cent in April with the labour office expecting the downward trend to continue in the coming months.

In the more politically sensitive seasonally-unadjusted or headline rate, the numbers out of work in dropped by 255,000 to 4.5 million last month.

This resulted in the headline jobless rate slipping from 11.5 per cent in April to 10.8 per cent in May. A year earlier the unemployment rate stood at 11.8 per cent.

The fall also helped to ease the pressure on Chancellor Angela Merkel left-right coalition government as it considers steps to reform the nation's labour market and welfare benefit system.

Seasonally-unadjusted unemployment surged to a post-Second World War record of about 5.3 million at the start of last year.

This followed the introduction of a round of tough changes to welfare payments launched by former Chancellor Gerhard Schroeder's Social Democrat-led government.

"The development at the job market in May was pleasing," said labour agency chief Frank-Juergen Weise in releasing the latest figures. "Unemployment sank surprisingly strongly as demand for workers rose again and job cuts continued to slow."

The data also showed the number of job vacancies rose by a seasonally adjusted 19,000 in May compared to 17,000 in April.

Employment rose 10,000 in April, the latest month for the figures, after falling a revised 13,000 in March.

The secretary general of Merkel's conservative Christian Democrats, Ronald Pofalla, seized on the fall in the numbers out of work as "reason for euphoria."

His views were echoed by private economists. "The continued good economic development in the next few months should mean a slight improvement in employment," said Commerzbank economists Ralph Solveen and Matthias Rubisch in a note to clients.

Indeed, the release of the latest unemployment data comes in the wake of a batch of solid German economic data and indicators.

The jobless figures also coincided with signs that a drop in the jobless rate was helping to underpin a rebound in private consumption.

Up until recently, weak private consumption has been a drag on economic growth with exports essentially the sole driving force behind expansion.

But data released Wednesday showed German retail sales rose a real 2.8 percent month on month in April and consequently beating analysts' forecasts. Economists had predicted a rise in April from March of 1.5 percent.

The latest retail sales figures follow the publication earlier this week of a key economic sentiment survey showing German consumer confidence climbing to its highest level in more than four years.

German business confidence remained at close to a 15-year high this month, another major economic indicator published earlier this month said.

In its first report on Germany since 2004, the Paris-based Organization for Economic Cooperation and Development said this week that Germany was on course to a robust recovery after a protracted period of stagnation.

But it warned that the country needs to do more to overcome rigidities in its labour market to help fight unemployment.

In line with the projections of many private economists, the Paris-based organization expects German economic growth this year to come in at 1.8 percent, which is double last year's expansion rate.

Wednesday's unemployment data showed the jobless rate came in at 9.2 percent in western Germany last month and 17.4 per cent in the country's more economically hard-pressed eastern part.

Unemployment in May was 349,000 lower compared to the same month last year.

In seasonally-adjusted terms the numbers out of work fell by 50,000 in west Germany, and by 43,000 in east Germany.

DPA

Subject: German News