German unemployment falls as Cup spurs jobs

29 June 2006

BERLIN – German unemployment dropped by a bigger-than- forecast 49,000 in June, the national labour office said Thursday, as a pickup in growth in Europe’s biggest economy and the World Cup helped to encourage employers to hire workers.

Analysts had predicted a 30,000 decline in the numbers out of work in the market-sensitive seasonally adjusted terms.

This month’s fall meant that the nation’s unemployment rate edged down to 10.9 per cent in June from 11 per cent in May, when the numbers out of work declined by 83,000.

“The labour market development in June was welcome news,” said Frank-Juergen Weise, chief of the Nuremberg-based labour office, in releasing the data. He added that the June fall was more than is the normally the case during this time of the year.

German unemployment has dropped on average by 25,000 a month between June 2005 and May this year, the labour office said.

As a further sign that economic growth in Germany is gaining traction, the nation’s key mechanical engineering and plant construction industry reported Thursday a business boom with its order books surging by almost a third in May compared to the same month last year.

This followed the release earlier this week of two major German economic indicators showing business confidence in the country soaring to a 15-year high and consumer confidence climbing to a four- and-half year high underpinned by Germany’s so far successful staging of the football World Cup.

Indeed, the football championships also appear to have helped to boost the labour market.

While economists have been divided on the overall benefits to economic growth generated by the month-long tournament, the world’s biggest sporting event this year is likely to have bolstered hiring in particular in the service sector.

“In May and June there was likely to have been a positive special effect caused by temporary jobs created around the football world championships,” wrote Commerzbank economists Ralph Solveen and Matthias Rubisch in a note to clients.

Evidence that Europe’s biggest economy is continuing to gather strength is also likely to add to expectations that the European Central Bank will hike interest rates again in the coming months.

The ECB’s benchmark refinancing rate currently stands at 2.75 per cent having been raised three times since December. In the more politically important seasonally unadjusted terms, German unemployment dropped by 138,000 to 4.397 million last month, Thursday’s labour office data showed.

That represents a fall of 383,000 compared to the same month last year.

However, the seasonally unadjusted fall in June means that the headline unemployment rate edged down by 0.3 percentage points to 10.5 per cent in June.

Welcoming the fall in unemployment, Labour Minister Franz Muentefering said the country still needed to press on with reforms and called on the nation’s industry to take steps to create more jobs.

But big job cuts in Germany keep coming with the nation’s giant insurer Allianz AG announcing last week that it was slashing its workforce by about 7,500 and carmaker Volkswagen AG having set itself on a collision course with unions by saying restructuring plans could hit 20,000 of its employees.

Moreover, economists and business leaders have attacked Chancellor Angela Merkel’s government for stepping back from rigorous reform of the nation’s inflexible labour market with even its planned modest changes having been placed on the backburner.

“The government needs to be more bold,” said Adolf Rosenstock, senior economist with Nomura International.

While the numbers out of work in unadjusted terms in the western part of the country dropped back to 8.9 per cent in June, the unemployment rate in the more economically hard-pressed eastern part of the country slipped to 16.8 per cent.

DPA

Subject: German news