German Unemployment Fell More Than Forecast in January: Economy

German unemployment dropped more than economists forecast to a two-decade low in January, bolstering economic growth as the euro region’s fiscal crisis prompted companies from Spain to Greece to cut jobs.

The number of people out of work fell a seasonally adjusted 34,000 to 2.85 million, the Nuremberg-based Federal Labor Agency said today. Economists predicted a decline of 10,000, the median of 32 forecasts in a Bloomberg News survey showed. In December, Italy’s jobless rate rose to the highest since 2004, while in the euro area it stayed at a 14-year high of 10.4 percent.

Germany’s economic expansion has helped soften a slowdown across the region as companies boost output and hiring to meet export demand. Still, with governments from Italy to Ireland toughening spending cuts to plug budget holes and global growth cooling, Siemens AG (SIE) Chief Executive Officer Peter Loescher said on Jan. 24 he expects a “mild recession” in the euro area.

“The upward trend in euro-zone unemployment is dampened by developments in Germany,” said Martin van Vliet, an economist at ING Group in Amsterdam. “Elevated unemployment rates in Southern Europe are partly caused by structural factors, but also reflect the pain inflicted by the draconian austerity programs. The high and rising unemployment rates in the periphery cast a dark cloud over growth prospects.”

Spain, Greece

Germany’s adjusted jobless rate slipped to 6.7 percent in January from 6.8 percent. In December, the country had the fourth-lowest unemployment in the 27-member European Union, data released in Luxembourg showed. At 22.9 percent, Spain reported the highest jobless rate, while in Greece, the rate was at 19.2 percent in October, according to latest available data.

Italy’s unemployment rate climbed to the highest in eight years in December as austerity measures helped push the euro area’s third-largest economy toward a recession, separate data showed today. The jobless tally rose to 8.9 percent, the highest since the data began in January 2004.

German growth may help drive the region’s expansion this year, with gross domestic product forecast to rise 0.8 percent, according to the European Commission. In France and Italy, GDP is seen increasing 0.6 percent and 0.1 percent in 2012.

Germany’s “labor market continues to develop positively,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “The downward trend in unemployment will fizzle out gradually over the coming months. Still, Germany will continue to show a better economic performance than the rest of the euro area.”

‘Good Start’

Today’s report is the latest to suggest the German economy is weathering a debt crisis that the European Commission says may push the 17-nation euro area into recession. German business confidence jumped to the highest in five months in January and market research company GfK SE predicts consumer sentiment will increase for a fifth straight month in February.

“We have to recognize that despite the good start this year, there are domestic and external risks that are real risks such as the debt problems,” Frank-Juergen Weise, head of Germany’s labor agency, said at a briefing today. “We still expect that unemployment in unadjusted terms will stay just below 2 million on average this year.”

German retail sales still unexpectedly declined in December as consumers’ Christmas shopping was damped by uncertainty about the economic outlook, separate data showed today. Sales, adjusted for inflation and seasonal swings, fell 1.4 percent from November.

French Consumers

In France, the region’s second-largest economy, consumer spending dropped in December, partly as rising unemployment discouraged household demand. Spending fell 0.7 percent from November, Insee, the statistics office in Paris, said today. Jobless claims jumped to a 12-year high of 29,700 in December as President Nicolas Sarkozy prepared to implement a second round of tax increases.

“The trend for unemployment is for a higher rate in the next few quarters because the growth picture isn’t sufficient to generate the number of jobs needed,” said Guillaume Menuet, senior economist at Citigroup Global Markets Ltd. in London. “There’s very little sign of an imminent improvement because uncertainty related to austerity measures.”

In the EU as a whole, the jobless rate held at 9.9 percent from the previous month, today’s report showed. About 16.5 million people were unemployed in the euro region, up 20,000 from November, the statistics office said.

Summit Frustration

European leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole and German Chancellor Angela Merkel voicing frustration with the Athens government’s failure to carry out an economic makeover. The leaders agreed to speed up a full-time 500 billion-euro ($658 billion) rescue fund and signed off on a German-inspired deficit-control treaty.

With euro-region households holding back spending and global export demand faltering, companies may continue to cut costs. Loescher said in an interview last week that Europe’s largest electrical-engineering company faces a “difficult environment in parts of the world.”

Royal Philips (PHIA) Electronics NV, the world’s largest lightbulb maker based in Amsterdam, said yesterday that it’s cautious about prospects for 2012 following the biggest loss in a decade.

“We are cautious about 2012 given the uncertainty in the global economy, and Europe in particular,” Philips CEO Frans van Houten said in a statement. “Europe is not a great place for growth right now.”

Elsewhere today, Japan’s Trade Ministry published data showing industrial production rose more than forecast in December as automakers rebounded from flooding in Thailand that disrupted supply chains. Production figures from neighbor South Korea today underscored the damage from Europe’s crisis, with output falling more than predicted.

To contact the reporters on this story: Simone Meier in Zurich at smeier@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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