German unemployment falls below 3m

Unemployment in Germany fell under the 3m mark this month – the first time it has done so in 16 years – according to statistics released on Thursday, though the government’s labour market experts warned it would begin to rise again by the middle of next year as the economy slows.

However, Frank Weise, president of the Federal Labour Agency, said the reforms of the previous government, which were partly responsible for the job-creation boom of the past two years, would ensure that future job losses “are neither as dramatic nor as sustained as in previous downturns”.

Seasonally adjusted figures for October published by the agency showed the number of jobseekers had dropped by 26,000 month-on-month, bringing the adjusted unemployment rate from 7.6 to 7.5 per cent. Internationally comparable figures, always published with a one-month lag, showed the jobless rate at 6.2 per cent in September.

The decrease in unemployment was slower than in previous month, Mr Weise said, yet economists were surprised by the labour market’s resilience – a rare piece of good economic news in a month that has seen the release of dismal sentiment surveys and deep cuts in analysts’ 2009 growth forecasts.

“The German labour market is still defying the elements,” said Carsten Brzeski, economist at ING. “During the last economic slowdown in 2001, it only took 10 months from the cyclical peak before the labour market turned. Now, the cyclical peak is already 17 months behind us and the labour market is still going strong.”

Although the labour market is a lagging indicator of the health of the economy, several large manufacturers have begun to respond to falling demand by cutting production, sending employees on forced holidays, and dismissing temporary workers.

The Labour Agency predicted in a recent study that unemployment would rise by an average of 30,000 next year, with the bulk of job losses concentrated in the second half, bringing the unemployment rate back up to 7.9 per cent.

The government is keen not to let the remarkable labour market recovery of the past three years peter out ahead of what is shaping up as a hotly disputed election where the two members of chancellor Angela Merkel’s “grand coalition” will run against each other again.

Ms Merkel has instructed Michael Glos, economics minister, and Peer Steinbrück, finance minister, to prepare a list of “targeted” growth-boosting measures to be approved by the cabinet next Wednesday.

Although the two ministers have fought over the choice of measures, delaying the announcement – Mr Glos wants tax cuts, Mr Steinbrück public investments – the plan is likely to include a range of subsidies to support consumption and small businesses.

Peter Struck, the Social Democratic parliamentary leader, on Thursday put the scale of the package at €25bn ($32bn) over four years, though this appeared to include measures already agreed, such as the possibility for households to deduct the cost of their health insurance from their taxable income as of 2010 – alone worth €9bn a year.

Olaf Scholz, labour minister, said on Thursday the government would extend from 12 to 18 months the eligibility for short-shift benefits, whereby the state pays two thirds of employees who are made temporarily redundant by companies that face falling demand.

Mr Scholz said the government would seek to persuade companies to hold on to their workers through the downturn, either by using the facility – which implies a binding commitment to re-hire the affected employees – or by offering further training to workers whose shifts are cut.

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