German Unemployment Falls to 18-Year Low as Economy Leads Europe Recovery

German unemployment fell for a 17th month in November as business optimism improved, underscoring the gulf between Europe’s biggest economy and peripheral nations struggling to cut debt.

The number of people out of work declined a seasonally adjusted 9,000 to 3.14 million, the lowest since December 1992, 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 adjusted jobless rate remained at 7.5 percent.

Rising payrolls help bolster domestic demand in Europe’s most populous country, lessening German reliance on exports and shoring up slower-growth economies in Greece, Ireland, Portugal and Spain. German retailers are enjoying a “dream start” to the Christmas shopping season, the HDE industry federation said yesterday, as the European Union said a bigger-than-expected “spillover” from Germany may be coming to Europe’s aid.

“The German economy stands at the eve of a virtuous circle for domestic demand,” said Carsten Brzeski, an economist at ING in Brussels. “Combined with a general-feel-good factor, German consumers seem set to finally spend their way out of the recession during the Christmas shopping season.”

The euro fell against the dollar today on concern that the debt crisis in Ireland will spread to other euro nations. The currency was at $1.2987 as of 10:05 a.m. in London from $1.3125 yesterday.

Porsche Engineers

German business confidence unexpectedly surged to a record in November as domestic spending increased, the Ifo institute said on Nov. 24. Ifo’s gauge of executives’ expectations also rose to a record.

Porsche SE will hire more than 100 engineers in the coming weeks and increase capacity at a center in Weissach, Germany, it said Nov. 18. Bayerische Motoren Werke AG will add 500 workers to its engines plant in Munich, Focus magazine reported this week, citing works council head Manfred Schoch.

The Berlin-based DIW institute said yesterday that the German economy will maintain its pace of recovery in the current quarter, forecasting expansion of 0.7 percent. Consumer spending is increasingly becoming an “engine of growth,” it said.

The revival of domestic demand may boost manufacturing across the euro region, helping recoveries in so-called peripheral nations including Ireland and Portugal, whose governments are struggling to reduce budget deficits.

Spillover

“The spillover from the pick-up in activity in Germany to other member states may materialize to a greater extent than currently envisaged,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said in Brussels yesterday.

The European Commission, the EU’s executive body, forecast 2.2 percent economic growth in Germany in 2011 after 3.7 percent this year, the fastest pace since the reunification of East and West Germany in 1990.

The recovery in the euro-area economy is “uneven” across member states, Rehn said. An index of export orders at German manufacturers rose in November, while similar gauges for Spain and Greece declined, according to commission figures.

A separate report today from the EU statistics office in Luxembourg showed that the euro-area jobless rate increased to 10.1 percent in October, the highest since July 1998, from 10 percent in September. Spain had the highest rate, at 20.7 percent.

Pay Boost

With German economic recovery showing few signs of cooling, workers may benefit from earlier pay increases. MAN SE will bring forward a 2011 raise, saying on Nov. 24 it will increase salaries in Germany by 2.7 percent as early as February.

Retail sales were higher than expected last weekend, the first of advent, and retailers are forecasting a further sales increase in the weeks leading up to Christmas, the HDE retail federation said yesterday. The Ifo institute’s German retail trade gauge rose in November to the highest level since the series started in January 2003.

Average German unemployment will drop to 2.96 million in 2011 from 3.24 million this year, the Labor Agency’s IAB research institute has forecast. That’s based on a prediction of 3 percent economic growth this year and 1.75 percent in 2011.

According to OECD data, Germany’s jobless rate was 6.7 percent in September. The equivalent rate in France was 10 percent, the U.S. rate was 9.6 percent and the Group of Seven average was 8.1 percent.

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

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.