Tuesday March 31, 01:16 PM
Global slowdown 'fuels German unemployment'
By William Ickes
FRANKFURT (AFP) - German unemployment surprised analysts by rising in March, underscoring Tuesday that the global crisis is bearing down on Europe's biggest economy in a way not seen since the Great Depression.
Unemployment edged up to 8.6 percent of the workforce in March from 8.5 percent a month earlier, according to unadjusted figures released by the national labour office that serve as a reference for public discussion.
It was the fifth straight monthly increase, and put the number of people looking for work at 3.586 million, an increase of 69,000, a statement said.
Economists polled by Dow Jones Newswires had expected unemployment to fall in March since rising temperatures normally support outdoors activity that help the labour market as a whole.
"The overall cold and snowy winter apparently prevented a monthly improvement in March for the first time since 1928," UniCredit (Milan: UCG.MI - news) economist Alexander Koch said.
He added that the effects of the bad weather had been "exacerbated by the deep recession in industry," which has been slammed by weakening trade as a result of the global slowdown.
Japan's unemployment rate hit a three-year high of 4.4 percent in February, the government said on Tuesday, as the deepening recession tightened its grip on Asia's largest economy too.
On a yearly comparison, the number of unemployed people in Germany rose in March by 78,000, "the first yearly rise... since December 2005," the labour office noted in a statement.
"The economic contraction is having an increasing effect on the labour market," labour agency president Frank Weise said.
He pointed to the rising unemployment rate, a drop in the creation of jobs that contributed to unemployment insurance funds, and a fall in the number of vacant posts.
Widespread use of part-time contracts subsidised by the government likely prevented a stronger increase, with industrial heavyweights like ThyssenKrupp (Xetra: 750000 - news) and Daimler (Xetra: 710000 - news) taking advantage of the plan along with masses of Germany's famed family-owned Middlestand enterprises.
The rise was "a clear sign that the downturn is spreading from the external and industrial sectors to the wider economy," Capital Economics analyst Jennifer McKeown said.
Surveys of hiring intentions have suggested the labour market downturn will increase, which McKeown said would offset a boost to disposable incomes from sharply lower inflation.
Other economists also warned that German unemployment would get worse this year and next.
Koch said foreign demand would not return to previous levels "in the foreseeable future," which "adds pressure on firms to permanently downsize capacities and workforce."
For IHS Global Insight economist Timo Klein, "unemployment will therefore now remain on a strongly rising trend until well into 2010."
Consumer spending would therefore likely remain very weak, which "supports our view that a recovery is some way off," McKeown said.
The German government has already indicated it would revise its 2009 economic forecast, which currently sees activity contracting by 2.25 percent, in late April.
Analysts expect the German economy to shrink by four to five percent this year.
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