Recession tightens its grip on labour market

German unemployment rose this month as the country was gripped by its worst recession in six decades – and analysts say worse is to come despite an uptick in consumer confidence.

Recession tightens its grip on labour market
Photo: DPA

Figures released on Thursday by the Federal Labour Agency put German unemployment at 8.5 percent of the workforce. Another 63,000 people were looking for work than in January, the biggest monthly gain since 2005.

“Further development of German unemployment is predetermined. Unfortunately the only way is up” for Europe’s biggest economy, according to UniCredit economist Andreas Rees said.

Only the widespread use of part-time contracts subsidised by the government prevented a stronger increase.

From family-owned firms to industrial giants such as chemical group BASF or car maker Daimler, the number of workers covered by the plan is soaring, and could hit a record 670,000 this month according to the labour agency, nearly double the level in January.

After initially resisting the effects of the global economic downturn, the German labour market has deteriorated quickly.

Labour Agency head Frank Weise said three key indicators for the labour market, the unemployment rate, the number of jobs created and the number of vacant posts, were all moving in the wrong direction.

The number of people looking for work in February, 3.55 million, stood in stark contrast to November, when it dipped briefly below 3.0 million.

With crucial German exports falling sharply and business investment also on the decline as a result of the global downturn, “surveys of hiring intentions point to much worse to come,” Capital Economics economist Ben May warned.

Timo Klein at IHS Global Insight said exports and investment would continue to fall this year, and that “unemployment will therefore now remain on a rising trend until well into 2010.”

Weise said there were currently no signs of plans to lay off large numbers of workers however and estimated the number of unemployed would average 3.5 million this year, with peaks above 4.0 million in the final months.

“Since the turn of this year, gainful employment has been falling unmistakably, and by the end of the year we expect the figure to have shrunk by some 900,000,” Commerzbank analyst Eckart Tuchtfeld said.

That augurs poorly for German consumption, long the economy’s weakest link, even though a widely-watched confidence index rose for the second straight month. German consumers bucked an EU trend as low inflation and an auto scrapping scheme boosted spirits, the GfK research institute said on Thursday.