German Unemployment Unexpectedly Rises as Risks Increase

German unemployment unexpectedly rose for a second month as seasonal factors combined with economic risks from the Ukraine crisis to a faltering euro-area recovery.

 

The number of people out of work climbed a seasonally adjusted 12,000 to 2.92 million in September, the Nuremberg-based Federal Labor Agency said today.

 

Economists forecast a decline of 2,000, according to the median of 27 estimates in a Bloomberg News survey. The adjusted jobless rate was unchanged at 6.7 percent, the lowest level in more than two decades.

 
The German economy, Europe’s largest, contracted in the second quarter and the strength of its rebound is key to reviving growth and inflation in the 18-nation euro area. Data today showed inflation in the currency bloc running at the weakest pace in almost five years and unemployment holding near a record high.

 
“The current economic slowdown caused by the Ukrainian crisis and other geopolitical risks is likely to cool the labor market temporarily,” said Christian Schulz, senior economist at Berenberg Bank in London. Even so, “the pool of unemployed has shrunk to a level where companies find it hard to find the required qualifications and thus have to resort to hiring from the reserves or from abroad,” he said.

 
The number of people out of work rose by about 13,000 in western Germany and was little changed in the east, today’s report showed. Unadjusted figures showed a drop in joblessness.

 
Declining Confidence

 
The outlook remains clouded by risks to trade flows from the crisis in eastern Europe and a stalling euro-area recovery. The European Union and U.S. have escalated sanctions against Russia, citing its support of separatists in Ukraine, and Russia has retaliated with restrictions of its own.

 
The Ifo index of business confidence in Germany fell this month to the lowest level since April 2013, while the ZEW gauge of investor sentiment was the weakest in almost two years.

 
Medical company Boehringer Ingelheim GmbH wants to cut 1,000 jobs in Germany in a bid to bring staffing to the level it had in 2013, Frankfurter Allgemeine Zeitung reported this month. Deutsche Telekom AG, Germany’s largest phone company, will dismiss hundreds of people, according to Manager Magazin.

 
Euro-Area Weakness

 
German unemployment still contrasts with near-record levels in the rest of the euro area. Joblessness in the currency bloc held at 11.5 percent in August, the EU’s statistics office in Luxembourg said today. Euro-area inflation slowed to 0.3 percent this month from a year earlier, the weakest pace since October 2009, Eurostat also said.

 
European Central Bank President Mario Draghi will this week announce details of a plan to buy asset-backed securities and covered bonds as he strives to boost consumer prices in the currency bloc. The program is the latest in a series of actions including cutting interest rates to record lows and offering cheap long-term loans to banks.

 
The ECB’s 24-member Governing Council meets on Oct. 2 in Naples, Italy. Policy makers will probably leave interest rates unchanged.

 
Source: Bloomberg / Sept. 30, 2014

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