German jobless at lowest level in two decades

German unemployment fell sharply for a second straight month in March, pushing the jobless rate down to 7.1 percent, its lowest level since figures for a unified Germany were first published two decades ago. In a sign that demand for labour remains robust in Europe's largest economy, the Federal Labour Office said unemployment fell by 55,000 in March after a drop of 54,000 in February.
The decline, which was helped by mild weather conditions, brought the overall unemployment total to 3.005 million, and took the sting out of an unexpected drop in retail sales for February which economists said was linked to rising inflation. "It is obvious that German consumers will not engage in a spending spree," said Carsten Brzeski at ING Financial Markets.
"However, with pent-up demand over the last years, strong economic prospects, more people at work and higher wages, the fundamentals for decent consumption boom in Germany have hardly been better since reunification." Labour Office head Frank-Juergen Weise said demand for labour was "high" and that growth in full-benefits paying jobs was continuing. Economists polled by Reuters last week had expected unemployment to fall by 25,000 and the rate to come in at 7.2 percent.
The German government used a number of job boosting schemes, including "Kurzarbeit" subsidies, to cushion the blow from a record contraction in gross domestic product (GDP) in 2009. The measures helped the German labour market outperform its peers in Europe at the height of the global financial crisis and the economy has gone from strength to strength since.
Still, a strong increase in low wage jobs and rising inflation driven by high energy prices have prevented private consumption from taking off in the way some economists were predicting in 2010, leaving the German economy highly dependent on export growth. "We have to be a little bit cautious," said Peter Meister at BHF Bank. "Germany is a very export-oriented economy so there is a possibility that growth could lose a little momentum because of events in Japan and delivery difficulties caused by the nuclear crisis. But that should only be a temporary damper."
Data from the Federal Statistics Office showed an unexpected 0.3 percent drop in real retail sales for the month of February in a sign rising prices, driven by high oil, may be tempering consumer demand. Annual inflation in Germany has pushed up to 2.2 percent, when harmonised according to EU standards, and consumer prices in the broader 17-nation euro zone jumped 2.6 percent in March compared to the year before, data on Thursday showed. The European Central Bank is expected to respond to rising price risks next week by raising its benchmark interest rate from a record low 1.0 percent. The threat of inflation contributed to the first drop in 10 months in the GfK market research group's measure of German consumer sentiment earlier this week.
On Thursday, the HDE retail association said it was sticking with its forecast for sales to rise by 1.5 percent on a nominal basis this year, but said risks to its projection were rising. Last week, Metro AG, the world's number four retailer, said unrest in North Africa and the Japanese nuclear crisis had raised the threat of a deterioration in the economic environment. The unrest has contributed to a rise in oil prices to over $116 per barrel.