German jobs threat grows as economy slows, analysts say

Business Materials 27 November 2008 06:24 (UTC +04:00)

Germany's jobs market stagnated in November, data to be released Thursday is forecast to show, amid signs that the slowdown in Europe's biggest economy is rapidly gaining momentum, dpa reported.

Analysts are predicting that the German Labour Office will say unemployment was unchanged this month, as a result bringing to an end a long run of monthly falls in the numbers. In October, the country's joblessness fell to a 16-year low in October to below 3 million and a rate of 7.2 per cent.

The release of the latest unemployment figures comes against the backdrop of a deepening sense of gloom about the outlook for the German economy as companies announce layoffs and cut production.

In particular, this includes Germany's key export sectors, such as chemicals and cars, which have been badly hit by the world economic downturn triggered by the financial crisis.

Germany's car industry could be poised to axe up to 60,000 jobs in the coming months, the German Automobile Economy Institute warned last week.

The country's auto industry association (VDA) estimates that about one in eight jobs in Germany is linked to the automobile industry.

A weak German labour market also is likely to add to the pressure on the European Central Bank to deliver another hefty cut in interest rates when it meets next week.

The Paris-based Organization for Economic Cooperation and Development (OECD) warned this week that 700,000 jobs might be axed in Germany by the end of 2010 as the nation faces up to what could be its biggest economic slump since 1949.

German Finance Minister Peer Steinbrueck said this week that the nation's economy could contract in 2009 by up to 1 per cent before the massive stimulus plans unveiled in recent weeks by governments around the world help to fire growth during the second half of the year.

Business confidence in Germany dropped to its lowest in nearly 16 years in November, a key survey released by the Munich-based Ifo economic institute said this week.

However, a separate index also released this week showed German consumer confidence staging a surprise increase on the back of a fall in oil prices and consequently lower inflation.

But the report, drawn up by the Nuremberg-based GfK market research institute, said the index's component measuring consumers' economic expectations dropped to its lowest reading in about 17 years.

Moreover, the GfK said the prospects for consumer confidence would now "very much depend on how deep the recession is and how the labour market will be affected."

Economists are expecting unemployment to rise in the coming months as companies begin laying off workers and cutting hiring after Germany tipped into recession during the third quarter as exports sunk and companies slashed back on investment.

"On the whole the economic downturn has worsened and will now have an impact on the labour market," said Hans-Werner Sinn, the president of the Ifo economic institute releasing the think tank's latest business confidence survey.

"The export business is expected to weaken at an accelerated pace and plans call for reductions in staff," he said.