More Germans out of work as eurozone crisis spreads

German labour market 'clearly losing momentum'

BERLIN (Reuters) — The number of Germans out of work rose for a fourth month running in July, though it remained close to its lowest since Germany reunified more than two decades ago.

The rise, though less than expected, was another sign that the eurozone crisis is beginning to hit the bloc's biggest economy.

The number of people out of a job rose by a seasonally adjusted 7,000 to 2.888 million in July from a downwardly revised 2.881 million in June, the Labour Office said. The consensus forecast in a Reuters poll of 32 economists was for joblessness to rise by 10,000.

"All in all, the German labour market is clearly losing momentum," ING economist Carsten Brzeski said. "Given the high level of employment, there is no need to panic. However, indications are increasing that light-hearted times are coming to an end."

A spate of German companies have announced job cuts recently, such as department store chain Karstadt saying it would cut 2,000 jobs while German truck maker MAN SE said it has ordered a hiring freeze at its truck and bus division to rein in costs as its second-quarter profit plunged by half to 218 million euros.

ThyssenKrupp, Germany's biggest steelmaker, also said last week it would temporarily curb working hours at its five steel-making facilities in Germany in response to a slowdown in demand.

"To some extent, the labour market has been Germany's active immunization against the ongoing eurozone crisis. However, signs that this immunization is fading away are hard to miss," Breszki said.

But the unemployment rate held steady at 6.8 per cent, unchanged from June, showing that the German job market continues to fare well compared with its crisis-stricken eurozone peers such as Spain, where unemployment hit 24.6 per cent in the second quarter, its highest level since the Franco dictatorship ended in the mid-1970s.

Germany's unemployment rate is also far lower than May's 11.1 per cent rate for the eurozone as a whole.

"The underlying trend on the German labour market remains positive overall in July but there are signs that momentum is weakening," Labour Office head Frank-Juergen Weise said in a statement, adding that the rise in joblessness was largely due to seasonal factors.

German Labour Minister Ursula von der Leyen told German television channel ZDF that the labour market was very healthy but warned that Germany was not an island and the strength of its labour market depended on the eurozone.

Private consumption

The rise in German joblessness will, along with data showing an unexpected fall in the country's June retail sales, dent expectations that private consumption can buoy the German economy through the eurozone financial crisis and global economic slowdown.

The strength of the German labour market, achieved by structural reforms and years of wage restraint, has played a crucial role in fuelling domestic demand.

The German economy powered ahead in the first three months of the year, expanding by 0.5 per cent and saving the eurozone from recession but recent data has indicated that the eurozone crisis is even hitting home in Germany, which was long considered the troubled bloc's last bastion of growth.

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