German joblessness falls in August - Boost for Merkel ahead of election

German joblessness falls in August - Boost for Merkel ahead of election
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2009
Published: September 1 2009 10:54 | Last updated: September 1 2009 10:54
http://www.ft.com/cms/s/0/f5963316-96d6-11de-9c24-00144feabdc0.html


German unemployment fell unexpectedly in August, helped by government action to safeguard jobs, as the country’s economic rebound left rival eurozone economies trailing.

Although modest, the second successive monthly fall in seasonally adjusted joblessness in Europe’s largest economy will come as a boost to Angela Merkel, Germany’s chancellor, as she seeks re-election on September 27.

It will also encourage hopes that Germany will avoid a dramatic shake-out in its labour market as a result of the steep collapse in economic output since late last year.

In contrast, the eurozone seasonally adjusted unemployment rate rose from 9.4 per cent in June to a 10-year high of 9.5 per cent in July, according to separate figures from Eurostat, the European Union’s statistical office.

Germany took economists aback last month by reporting it had escaped recession in the second quarter – ahead of the UK and US.

Seasonally-adjusted German unemployment fell by 1,000 to 3.48m in August. That followed a 5,000 fall in the previous month. Unemployment as a share of the labour force remained unchanged at 8.3 per cent in August.

Berlin has expanded significantly publicly funded schemes allowing companies to put workers on short-time working. Earlier in the crisis, many economists – including at the European Central Bank – feared such measures would simply slow an inevitable economic restructuring process in Germany’s heavily export-dependent economy.

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Interactive feature on the outlook across Europe

Even if fears of German unemployment hitting 5m next year were looking misplaced, further rises were inevitable, said Andreas Rees, economist at Unicredit in Munich. ”Since one cannot beat fundamentals, this is simply a mission impossible,” he said.

Germany’s latest unemployment numbers were also flattered by one-off statistical changes which masked an underlying rising trend, economists said.

Trends in German unemployment in the coming months could now prove decisive in determining the strength of the eurozone’s recovery. If rises are only modest, domestic demand – coupled with a pick-up in exports powered by a revival in global demand – may see Germany leading a broader recovery across continental Europe.

However, divergences remain across the eurozone – possibly exacerbated by the strength of the euro, which appears to be wreaking less damage in Germany.

The fall in German unemployment coincided with revised purchasing managers’ indices for August that highlighted the strength of the country’s manufacturing rebound, relative to other eurozone countries.

Along with their counterparts in France, German manufacturers reported the fastest rate of improvement in August, with its index leaping from 45.7 in July to an upwards revised 49.2 in August. That brought it close to the 50 level, above which the index indicates an expansion in activity.

At the other end of the scale were Italy, Spain and Ireland, which reported lower levels of output.

“Italy was by far the weakest performer overall and the only nation to report a steeper contraction in production than in July,” according to Markit, the information group, which produces the survey.

Spain, meanwhile, has the worst unemployment situation in the European Union, with its unemployment rate rising from 18.2 per cent in June to 18.5 per cent in July, according to the Eurostat figures.