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ECONOMY

Economic downturn hits German job market

The global financial crisis has come to Europe's largest economy: German unemployment rose in December halting nearly three years of job creation, according to official figures released on Wednesday.

Economic downturn hits German job market
Photo: DPA

The number of people out of work in Germany rose by 114,000 in December to 3.1 million as the fallout from the economic downturn begins to be felt in the labour market, data from the Federal Labour Agency showed.

“2008 was the best year for the jobs market. Nevertheless, the December data show that the economic crisis has reached the jobs market,” the head of the Labour Agency, Frank Weise, said in a statement.

“As a result, our optimism for 2009 has also been dampened,” Weise added.

December’s unemployment rate rose by 0.3 points to 7.4 percent.

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.

Following a surprisingly resilient performance in recent months, the positive trend in the German jobs market has now turned, the Labour Agency said.

Alexander Koch, an economist at Unicredit, said December’s data marked a “turning point” for Germany’s labour 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.

Germany is already in recession and is forecast to suffer its worst slump in the post-war period in 2009. In a bid to stave off the worst effects of the downturn, Chancellor Angela Merkel’s coalition is due later this month to launch a second stimulus package worth some €50 billion ($70 billion).

In mid-December, Weise told the magazine Focus 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 told the magazine.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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