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German Unemployment Rises as Risks to Economy Build

Aug. 28 (Bloomberg) -- German unemployment unexpectedly rose in August as a stagnating euro-area recovery and tension with Russia darkened the outlook for Europe’s largest economy.

The number of people out of work climbed a seasonally adjusted 2,000 to 2.901 million in August, the Nuremberg-based Federal Labor Agency said today. Economists forecast a decline of 5,000, according to the median of 30 estimates in a Bloomberg News survey. The adjusted jobless rate was unchanged at 6.7 percent, the lowest level in more than two decades.

Germany’s economy shrank last quarter and the strength of any rebound is critical for the 18-nation euro area. The region’s stalling recovery and weakest inflation since 2009 has prompted European Central Bank President Mario Draghi to signal that he could step in with quantitative easing.

“The German economy is not in as good a shape as it was at the beginning of the year,” said Michael Holstein, an economist at DZ Bank AG in Frankfurt. “The labor market is still strong but if the economic outlook worsens further, we’ll see the effect on employment later in the year.”

The number of people out of work rose by 3,000 in western Germany and fell by 1,000 in the east, today’s report showed.

While a 0.2 percent drop in German gross domestic product last quarter was largely weather-related, the outlook is now clouded by escalating international sanctions against Russia because of its support for separatists in Ukraine.

Weaker Sentiment

The Ifo index of business sentiment in Germany declined for a fourth month in August and the ZEW gauge of investor confidence slid to the lowest level since 2012. The Bundesbank has warned that an anticipated rebound in the second half of the year is now in doubt.

Dusseldorf-based GEA Group AG will cut about 1,000 jobs as the maker of food-processing equipment seeks to save 100 million euros ($132 million) in annual costs by the end of 2017.

Even so, the labor agency said employment demand in Germany remains at a “good level,” and the figures contrast with those of the rest of the euro area. Unemployment in the currency bloc probably held at 11.5 percent in July, near the record 12 percent set last year, according to a Bloomberg survey before figures tomorrow.

Draghi said in Jackson Hole, Wyoming, on Aug. 22 that the long-term cohesion of the euro area depends on each country achieving a sustainably high level of employment.

While employment is outside the ECB’s mandate, it can affect prices. Draghi pointed to a drop in inflation expectations -- a contingency he has previously said would warrant broad-based asset purchases.

“Monetary policy can and should play a central role,” he said. “We stand ready to adjust our policy stance further.”

To contact the reporter on this story: Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net

To contact the editors responsible for this story: Fergal O’Brien at fobrien@bloomberg.net Paul Gordon, Jana Randow

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