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Unemployment Falls After Export Surge, Investment Fueled Record GDP Growth

German unemployment declined for a 14th month in August after surging exports and investment fuelled record economic growth in the second quarter.

The number of people out of work declined a seasonally adjusted 17,000 to 3.19 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast a decrease of 20,000, according to the median of 31 estimates in a Bloomberg News survey. The jobless rate was unchanged at 7.6 percent.

The German economy is leading Europe’s recovery as exports and investment surge, prompting companies from Daimler AG to Bayerische Motoren Werke AG to add workers. That may already be feeding through to consumer spending, which rose the most in almost two years in the second quarter.

“Looking at order books of German companies, we’ll see this miracle continue at least this year,” said Carsten Brzeski, an economist at ING Group in Brussels. “We’ll see positive surprises in the second half of the year, that’s all we need for a self-sustained recovery in Germany.”

The euro was up 0.13 cents to 1.2676 versus the U.S. dollar at 10:54 a.m. in Frankfurt, climbing from an earlier low of 1.2693.

Unemployment across Germany’s 16 states declined to the lowest since November 2008. In the six states of former East Germany, it fell below the 1 million mark for the first time since 1991, when reunification with West Germany the previous year caused mass layoffs as state-run industries were shut or taken over by their western counterparts.

East Profits Most

The development in eastern Germany “is a very important benchmark psychologically,” Heinrich Alt, a Labor Agency board member, said in an interview in Nuremberg. “The east is profiting above average from the economic upswing and I expect this development to continue.”

Falling unemployment may cushion the impact of cooling global growth on foreign demand and European governments’ planned spending cuts to reduce budget deficits. U.S. economic expansion slowed more than initially estimated in the second quarter and growth in Europe’s services and manufacturing industries eased this month.

Chancellor Angela Merkel’s Cabinet is tomorrow set to approve a second package of spending cuts and revenue-raising measures to tackle the budget gap, including levies on air travel and nuclear-power plants. The total program amounts to 81.6 billion euros ($103 billion) from 2011 through 2014.

‘Phenomenal Growth’

The German economy, Europe’s biggest, expanded 2.2 percent in the second quarter from the previous three months, when it grew 0.5 percent. That’s more than double the pace of the euro- area and the fastest since the country’s reunification two decades ago.

For now, growth is being maintained. German business confidence unexpectedly increased to a three-year high in August and the Bundesbank earlier this month raised its 2010 growth forecast to 3 percent from 1.9 percent.

“We’ve had a phenomenal growth rate in the second quarter, so we’re seeing this effect on the labor market,” said Mario Gruppe, an economist at NordLB in Hannover who correctly forecast the 17,000 drop. “On the other hand, we can see that the dynamic is decreasing, so the number of unemployed is coming down, but not as much as it was four months ago.”

Daimler, which raised its 2010 operating forecast on July 27, has hired 1,800 temporary workers, while BMW has added 5,000 temporary workers. HeidelbergCement AG, the world’s largest maker of aggregates used to produce concrete and asphalt, said last month that sales rose for the first time in six quarters in the three months through June.

Short-Term Work

Germany limited the increase in unemployment during the recession with a state-sponsored program that allowed companies to put workers on shorter working weeks to reduce costs while the government paid part of the remaining wage. The short-term work program is now losing importance as demand for staff increases, the Labor Agency said.

Even so, the economic situation remains “fragile” both in Germany and globally, the Labor Agency’s Alt said. Further declines in joblessness will probably be “moderate,” he said.

“It’s time to recognize that the German recovery is a pretty traditional, and hence powerful, one -- first export driven and then spreading to domestic demand,” Goldman Sachs Group Inc. Chief European Economist Erik Nielsen said in an e- mailed note. “We remain confident that the slowdown will be only moderate” in Europe.

To contact the reporters on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net; Christian Vits at cvits@bloomberg.net.

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