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German unemployment hits new high
BERLIN, Germany (CNN) -- German unemployment rose to a five-year high on Wednesday, piling more pressure on embattled Chancellor Gerhard Schroeder. The number of people out of work, adjusted for seasonal factors, rose 62,000 in January to 4.274 million, the Federal Labour Office said. On an unadjusted basis, unemployment rose 398,000 to 4.623 million, equalling a level last reached in March 1998. Analysts polled by Reuters had on average forecast adjusted unemployment rising 29,600 as Europe's biggest economy stagnates forcing corporations to axe jobs. The gloomy news will do little to improve Schroeder's standing with the electorate. In regional elections on February 2, Schroeder's Social Democratic Party lost vital seats to the opposition CDU over his handling of the economy. (Full story) The data could further dent consumer confidence and their willingness to spend. That could make it more difficult for the government to hits its lowered growth target and may push the economy into its second recession in two years.
Last week, the government cut its growth target to 1 percent for 2003 from 1.5 percent. The economy grew 0.2 percent last year – its slowest in nine years, The Federal Labour office blamed the rise in unemployment on bad weather and an end-year deadline for lay offs under German employment protection laws. It said due to seasonal factors headline unemployment should fall between March and May by around 130,000 a month. "I would certainly expect the labour market to remain weak for the rest of the year,'' James Carrick, Europe economist at ABN AMRO in London, told Reuters. ABN AMRO expects the seasonally adjusted unemployment rate to peak at around 10.5 percent in the fourth quarter of the year and to remain at that level into 2004, Carrick said. Economy and Labour Minister Wolfgang Clement said last week Germany could do with an interest rate cut to boost the economy but conceded the European Central Bank had to take a euro zone wide view. Most economists polled by Reuters expect the ECB's policy making governing council to keep the central bank's key lending rate steady at 2.75 percent when it next meets on Thursday. Reuters contributed to this report.
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