Rise in German jobless spells more gloom for Europe

BERLIN Thu Jun 28, 2012 10:03am BST

BERLIN (Reuters) - German joblessness rose for the third month in a row in June, though it remains close to post-reunification lows, data showed, signalling that Europe's largest economy is not immune to the euro debt crisis and cannot be relied on to prop up growth.

The Labour Office said on Thursday the number of people out of a job rose by a seasonally-adjusted 7,000 to 2.882 million in June from 2.875 million in May. The consensus forecast in a Reuters poll of economists was for joblessness to rise by 5,000.

"The upturn on the labour market is faltering. In the second quarter we have seen an increase in the seasonally adjusted unemployment number every month," said Rainer Sartoris of HSBC Trinkaus.

"The insolvency of (drugstore chain) Schlecker probably played a role. The labour market is not toppling but it is stagnating."

Earlier this month, creditors failed to find a buyer for insolvent Schlecker, leaving around 13,200 employees in Germany out of work as the chain closed its 2,800 stores in the country.

The seasonally-adjusted unemployment rate remained steady at 6.8 percent, a post-reunification record low, after the Labour Office revised it up to this level from an originally reported 6.7 percent for May.

"There are signs in June of a weaker development on the German labour market," Labour Office head Frank-Juergen Weise said in a statement.

The strength of Germany's job market, due to structural reforms and years of wage restraint, has bolstered domestic demand, helped the country of more than 80 million people recover swiftly from the 2008/09 global financial crisis and hold up strongly during the euro zone debt crisis.

REBALANCING

Germany grew 0.5 percent in the first quarter, helping the currency bloc to avoid recession. Wage hikes in Germany and strong domestic demand have also boosted imports from its neighbours, helping to address trade imbalances in the currency bloc and stimulating the economies of other member states.

Economists noted that the labour market was still doing better in Germany than elsewhere in Europe and would help domestic demand remain a driver of economic growth.

But signs were increasing that its resilience was "slowly cracking up", which was a cause of concern for both the German economy and the euro zone at large.

"Over the last two years ... German labour costs have increased slightly faster than in the entire euro zone, outpacing countries like Spain, Portugal or Italy but staying behind France," said ING's Carsten Brezski.

"Obviously, an end of the German job miracle and weaker external demand for German products would make recent wage increases one-offs and consequently euro zone rebalancing even more difficult," he said.

Other recent data have suggested the German economy is losing stamina as uncertainty over the euro zone debt crisis weighs on trade and investment.

Data last week showed German business sentiment collapsed in May and the manufacturing sector shrank as turmoil in the euro zone unsettled firms.

(Additional reporting by Holger Hansen, Rene Wagner and Michelle Martin, editing by Gareth Jones)

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