German unemployment falls to 7pc in May

FRANKFURT: German unemployment fell to seven percent of the workforce in May, official data showed Tuesday though a slower rate of decline and muted retail sales took some of the shine off the results.

The Federal Labour Agency said the unadjusted number of unemployed had dropped below three million in Europe's biggest economy, with a fall of 118,000 bringing the politically symbolic figure to 2,960,000.

When adjusted for seasonal and calendar effects, it came to 2.974 million, "well below the mark of 3.190 million seen at the end of the previous economic boom in October 2008," IHS Global Insight economist Timo Klein noted.

The unemployment rate of 7.0 percent was the lowest level for Germany since records were compiled following its reunification in late 1990.

"Labour market reforms undertaken in 2003 to 2005 continue to make strong positive impact on employment," Berenberg Bank economist Christian Schulz commented.

When adjusted for seasonal and calendar effects the decline was a much more modest 8,000 however, way below an average analyst forecast fall of 30,000 compiled by Dow Jones Newswires.

That compared with an average drop of around 38,000 per month in the period from January through April moreover, indicating that unemployment fell at a much slower pace, perhaps because better weather early this year moved declines up a few months.

Across the 17-nation eurozone, unemployment was unchanged in April at 9.9 percent for the third month running, official European Union figures showed.

"In comparison to the EMU as a whole, and especially the debt-crisis countries, the labor market performance remains outstanding" in Germany, UniCredit economist Alexander Koch said.

But the steady decline has yet to produce an equivalent rise in consumer spending.

Earlier on Tuesday, the national statistics office said retail sales gained 0.6 percent in April, following a revised slump of 2.7 percent in March.

The new data "again illustrated the German economy's main dilemma: while the labour market remains the showcase of the recovery, private consumption is only slowly getting off the ground," ING senior economist Carsten Brzeski said.

German manufacturers have well-stocked order books and are investing more, and the demand for labour should remain strong, analysts say, with some warning of shortages.

The Ifo economic research institute said Tuesday that its latest survey of German credit conditions showed "the economic upswing in Germany is being fuelled by unusually strong domestic investment activity that is supported, if not triggered, by the favourable lending conditions of the banks."

Many economists have revised their 2011 German growth estimates higher to 3.0 percent or more, compared with the official forecast of 2.6 percent.

"Overall, the economic recovery appears to have enough domestic stamina to lead to continually declining unemployment during 2011-12," Klein said.

Yet "looking ahead, it is obvious that German consumers will not engage in a spending spree," Brzeski cautioned, even though "the fundamentals for a decent consumption boom in Germany have hardly been better since reunification."

Copyright AFP (Agence France-Presse), 2011