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German unemployment at 4-year high
BERLIN, Germany (CNN) -- The number of people looking for work in Germany jumped to a four-year high last month as Europe's biggest economy struggles to recover from recession amid ballooning deficits and increasing labour strife. The Federal Labour Office said on Thursday that unemployment rose by 28,000 in December from the previous month to a seasonally adjusted 4.197 million. That is the highest level since 1999, and above average analysts' forecasts of a 27,200 rise in unemployment. The German jobless rate now stands at 8.5 percent, up from 8.4 percent in November. "This is definitely very bad news for the government. This situation is not going to look good for the next two quarters before there is any decisive turnaround," Otmar Lang, senior economist at Deutsche Bank, told CNN. "But the situation will look poor for some time because of geo-political problems and poor global economic outlook." The Germany economy, which is recovering from a recession in the last half of 2001, likely grew by just 0.2 percent in 2002, according to official figures due on January 16. The government is expected to trim its 2003 outlook of 1.5 percent growth at the end of this month. DIW, an influential German economic institute, has already cut its growth forecast for this year to 0.6 percent from 0.9 percent. The December jobless numbers are reflected in recent retail sales figures. On Tuesday, the national statistics office said seasonally adjusted retail sales fell 3.2 percent last month from November. On Thursday, German retailer giant Metro said its sales rose 4 percent in 2002 to 51.5 billion euros ($53.4 billion) but that fell short of its already lowered target. Full story) "Life is going to get tougher," Justin Urquart-Stewart, fund managers at Seven Investment Management, told CNN. "A spending boom in U.S. and UK seems to be tapering off. The German economy is already in trouble and will take a long time to turn around." The coalition government of Gerhard Schroeder, which was re-elected in September on a promise to turn the economy around, has launched a programme to raise taxes, increase social security contributions and reform the labour market. But DIW warned that tax increases could have a negative impact on the German economy by reducing investment and spending as companies and individuals tighten their belts. This, in turn, could result in more layoffs and weaker retail sales, analysts say. Despite the government's cost-cutting programme, Germany has been criticised for going from a surplus in 2000 to a budget deficit that exceeds the limits set by the European Commission. The Commission -- the administrative arm of the 15-nation European Union -- on Wednesday set a deadline of May 21 for Germany to adopt measures to cut its budget deficit this year. (Full story) In 2002, the government breached the limit of 3 percent of gross domestic product, as set out by the Stability and Growth Pact. The pact, of which Germany was one of the main architects, also calls EU members to balance their budgets by 2006. Meanwhile, the German economy faces more disruption as last-ditch talks continued on Thursday in an effort to avert a damaging strike by millions of public sector workers. (Full story) Interior Minister Otto Schily said on Wednesday that federal, state and municipal employers would work "until the last minute" to defuse the threat of a work stoppage by nearly three million workers including nurses, firefighters, bus drivers and refuse collectors. The cash-strapped government on Monday rejected a compromise proposal from mediators, called in last month after previous talks collapsed.
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