Jan. 7 (Bloomberg) -- German unemployment rose for the first time in almost three years in December as the labor market caught up with an economy that shrank during most of 2008.

The number of people out of work, adjusted for seasonal swings, rose 18,000 to 3.18 million last month, the Nuremberg- based Federal Labor Agency said today. Economists expected an increase of 10,000, according to the median of 30 estimates in a Bloomberg News survey. The adjusted unemployment rate was unchanged at 7.6 percent.

The increase “is a trend change,” Volker Treier, chief economist at the DIHK business association that represents 3.6 million companies, said in an interview. “The only question is how sharp we’re going in the other direction.”

Germany’s jobs market, which had resisted the financial crisis until now, is starting to buckle as the deepening recession prompts Siemens AG and Bayerische Motoren Werke AG to cut jobs. Cooling growth and rising unemployment increase pressure on the European Central Bank to continue cutting interest rates and may harm Chancellor Angela Merkel’s chances of securing a second term in September’s national election.

‘Economic Crisis’

“The economic crisis has reached the labor market,” Labor Agency head Frank-Juergen Weise said in a Bloomberg Television interview. The increase in unemployment and the decline in job openings is “noticeable.”

Germany’s export-driven economy slipped into a recession last year after shrinking in the second and third quarters. Fourth quarter data indicates the slump has worsened, with exports and industrial production declining in October and business confidence dropping to the lowest in more than a quarter century in December.

Bad news from the labor market and the broader economy may dominate the campaigns in elections this year that culminate in a federal ballot in September.

Merkel’s Christian Democratic Union and the pro-business Free Democratic Party, its preferred partner, would be able to form a government if elections were held now, a poll published today showed. Support for the CDU and the Christian Social Union, its Bavarian affiliate, held at 37 percent from a week earlier while the Free Democrats gained 1 percentage point to 13 percent, according to a Forsa survey for Stern and RTL television.

Government Measures

The German government has already taken measures to help keep staff on payrolls even amid slumping business. In its first economic stimulus package, which went into effect on Jan. 1, it extended labor agency aid to workers affected by shortened shifts to 18 months from six months.

Merkel proposed a second set of measures that include the government paying half of employers’ social insurance contributions for short-shift workers. The package -- as much as 50 billion euros ($68 billion) over two years -- was agreed in principle by leaders of the coalition on Jan. 5.

Still, slumping orders abroad and at home for German cars and machinery are sending ripples through the economy. BMW, the world’s largest maker of luxury cars, on Jan. 5 said U.S. sales fell 36 percent last month from a year earlier. Daimler AG said U.S. sales at its Mercedes-Benz Cars unit fell 24 percent from a year earlier.

While Germany’s biggest companies have pledged a “voluntary no-firing policy” after a meting with Merkel on Dec. 15, associations representing smaller businesses have said they can’t guarantee that jobs will be saved.

Unemployment Outlook

Economists are divided over how much unemployment will increase this year. The Kiel-based IfW economic institute, predicting an economic contraction of 2.7 percent, said the number of job seekers will rise by 400,000 on average from 2008. The Berlin-based DIW institute sees an increase of 200,000.

“With survey measures of hiring intentions plunging lately, we see the rate heading toward 10 percent,” Jennifer McKeown, an economist at Capital Economics in London, said in an e-mailed statement. “Unfortunately, this deterioration looks set to offset the positive impact of falling inflation on households.”

Inflation is easing after oil prices dropped by around two- thirds from a July record, giving the ECB leeway to reduce borrowing costs. European producer prices fell the most in 27 years in November, according to a separate report today.

Investors indicate they expect the ECB to cut its key interest rate by at least 50 basis points at its Jan. 15 meeting, according to Eonia forward contracts. The central bank has already lowered the rate by 175 basis points to 2.5 percent since early October.

According to the latest comparable data from the Organization for Economic Cooperation and Development, Germany’s jobless rate was 7.1 percent in October, compared with 8.2 percent in France and 6.5 percent in the U.S.

In the euro region, unemployment probably rose to 7.8 percent in November from 7.7 percent in October, economists’ forecast. The EU statistics office in Luxembourg will publish that data tomorrow at 11 a.m.

In western Germany, the number of people out of work rose by a seasonally adjusted 19,000 in December, while the number in eastern Germany fell by 1,000, today’s report showed.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net.

Last Updated: January 7, 2009 05:45 EST