German June Unemployment Rises as Crisis Starts to Bite

German Unemployment Rose in June as Euro Crisis Started to Bite
Rising joblessness in Europe’s biggest economy underscores the deepening financial crisis in the 17-nation euro area as the turmoil shifts from states on the region’s periphery such as Greece and Ireland to core members Spain and Italy. ChancellorPhotographer: Michele Tantussi/Bloomberg

German unemployment climbed in June for the fourth month this year as the debt crisis in the euro region weighed on companies’ willingness to create jobs.

The number of people out of work rose a seasonally adjusted 7,000 to 2.88 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast an increase of 3,000, the median of 30 estimates in a Bloomberg News survey shows. The adjusted jobless rate held at 6.8 percent after last month’s rate was revised up from 6.7 percent.

“Signs are increasing that the resilience of the German labor market is slowly cracking up,” Carsten Brzeski, an economist at ING Group in Brussels, said in a note to investors. “This might not be a cause for concern for the German economy, yet, but definitely for the rest of the euro zone.”

Rising joblessness in Europe’s biggest economy underscores the deepening financial crisis in the 17-nation euro area as the turmoil shifts from states on the region’s periphery such as Greece and Ireland to core members Spain and Italy. Chancellor Angela Merkel and fellow European Union leaders begin a summit in Brussels today that aims to address the widening turmoil.

German government bonds stayed higher after the report. The yield on the bund maturing July 2022 was five basis points lower at 1.52 percent at 11:05 a.m. in Berlin. The euro reversed an advance against the dollar, trading down 0.3 percent at $1.2433.

Labor Demand

In Germany, the impact began to be felt in October, when a 27-month drop in unemployment ended. The labor agency said yesterday that its BA-X index of labor demand slumped six points in June to 165, the biggest drop since January 2009, when Germany was in recession.

Unemployment rose last month by 1,000 after revisions, the labor agency said today.

Commerzbank AG, Germany’s second-largest lender, will close its commercial real estate and ship-finance businesses, the company said June 26. Commerzbank decided to “further reduce risks in a consistent manner” as “a swift end to the euro crisis is not in sight,” Chief Executive Officer Martin Blessing said in an internal document sent to employees.

Deutsche Telekom AG plans to cut 1,300 positions at its headquarters by 2015 without firing workers, Frankfurter Allgemeine Sonntagszeitung said June 23, citing Marion Schick, the board member responsible for human resources.

Business Climate

The Munich-based Ifo institute’s June business climate index, based on a survey of 7,000 executives, dropped to the lowest reading since March 2010. The ZEW Center for European Economic Research in Mannheim said June 19 that its index of investor and analyst expectations recorded its steepest decline since October 1998 in June.

“Companies are holding back with investments and aren’t looking for labor as much any more” in Germany said Norbert Braems, an economist at Sal Oppenheim Jr and Cie KGaA, who cut his growth forecast for the country to 1 percent this year from 1.3 percent. Looking ahead, “we would expect a moderate increase in unemployment unless we enter a fresh phase of escalation” in the crisis, he said.

Since posting growth of 0.5 percent in the first quarter, Germany’s economy has cooled, with factory orders dropping the most in five months in April. The economy’s expansion is set to slow in the course of the year, the Finance Ministry said June 20 in its monthly report.

Weise ‘Tense’

“Demand for labor has receded somewhat from a high level,” labor agency head Frank-Juergen Weise told reporters in Nuremberg. While he doesn’t expect a trend change in the labor market this year, Weise said he’s “tense” about the outlook for 2013.

German growth will slow to 1 percent in 2013 from an estimated 2 percent this year and the risk that Germany will enter a recession has “risen markedly,” the Kiel Economics Institute said June 26. The European Commission expects the euro-area economy to shrink 0.3 percent this year, with at least eight member states already in recession.

Even so, average euro area unemployment this year may be twice that of Germany, the Commission said May 11. Germany’s jobless rate was 5.4 percent in April, according to the latest harmonized Organization for Economic Cooperation and Development figures. That compared with 8.1 percent in the U.S., 10.2 percent in France and Italy and a euro-area average of 11 percent.

The European Central Bank kept its benchmark lending rate at a record low of 1 percent on June 6. To help revive growth in the euro region, “a few” policy makers called for a further cut, ECB President Mario Draghi said after the last meeting, fueling speculation the bank could act next month.

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