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German Unemployment Unexpectedly Rises as Growth to Slow

Jobseekers Queue Inside an Agentur fuer Arbeit Employment Office
Jobseekers queue at the reception area inside an Agentur fuer Arbeit employment office in Stuttgart. The number of people out of work rose a seasonally adjusted 23,937 to 2.905 million in May, the Nuremberg-based Federal Labor Agency said today. Photographer: Krisztian Bocsi/Bloomberg

German unemployment unexpectedly increased for the first time in six months amid signs of a slowdown in Europe’s largest economy that could weigh on the fragile euro-area recovery.

The number of people out of work rose a seasonally adjusted 23,937 to 2.905 million in May, the Nuremberg-based Federal Labor Agency said today. Economists forecast a decline of 15,000, according to the median of 31 estimates in a Bloomberg News survey. The adjusted jobless rate was unchanged at 6.7 percent, the lowest level in more than two decades.

German business confidence decreased this month on concern growth will slow as the 18-nation euro area, the country’s biggest export market, struggles to sustain its revival. The Bundesbank has said the nation’s economic expansion this quarter is unlikely to match the pace of the first three months, which was boosted by unusually warm weather.

“The mild winter, which had flattered German economic data a bit in the first quarter with strong gross domestic product growth and job-market gains, is now striking back,” said Christian Schulz, senior economist at Berenberg Bank in London. “Germany’s labor market remains on a strong positive trend despite the slight May setback, however.”

The number of unemployed in May rose by 16,018 in western Germany and 7,919 in the eastern part of the country, today’s report showed. The total number of jobless declined by 24,798 the previous month.

Peak Past

Germany’s DAX index of stocks was little changed at 9,947 at 1:08 p.m. Frankfurt time, near a record high. The euro was little changed at $1.362. The single currency is headed for its biggest monthly decline in four months amid speculation the European Central Bank will add to monetary easing next week.

“We have to acknowledge that the peak of economic momentum is behind us,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “We’ve achieved a lot and it’ll be difficult to continue at the same speed. But at the moment, everything’s still fine economically speaking.”

The German economy expanded 0.8 percent in the first quarter, up from 0.4 percent in the previous three months, after the warmer weather boosted construction and domestic spending. The euro-area economy grew just 0.2 percent.

Germany’s labor market is still at odds with those of its peers in Europe’s south and the currency bloc as a whole. More than one in four people in the Spanish workforce is without a job, and unemployment in the euro area was 11.8 percent in March, just below an all-time high.

Bank Lending

Joblessness across the region is one sign of what ECB President Mario Draghi identified this week as “a slowly consolidating recovery” that isn’t strong enough to boost prices to a level policy makers are comfortable with. Inflation has remained below 1 percent since October, compared with the central bank’s goal of just under 2 percent.

ECB data today showed bank lending in the euro area shrank 1.8 percent in April from a year earlier, the 24th straight decline. Lending increased 0.2 percent from March. Growth in M3 money supply slowed to 0.8 percent from 1 percent.

ECB Executive Board member Yves Mersch said in Tokyo today that the central bank is working on a package of measures to fuel price growth and stimulate the economy, which could include a negative deposit rate for the first time.

Negative Rates

“If we would cut the main refinancing rate without cutting the deposit facility rate, it would mean we will narrow the corridor” between the rates, he told reporters. “That is exactly what we do not intend to do. So obviously when we talk about these instruments, it is under the assumption that the symmetric corridor would be maintained, and from that point of view, we are aware that this would mean moving into negative territory with the deposit rate.”

The ECB has also said that it is considering liquidity measures or asset purchases. Officials will gather in Frankfurt on June 5 for their next policy meeting.

“While the April data does add a little bit of evidence that the economic recovery is gradually feeding through to the credit cycle, most ECB members will see plenty of room to ease policy further without stoking inflation,” said Schulz. “The recovery remains a largely creditless one.”

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