German Unemployment Declines as Sentiment Improves

Thursday, 31 Jan 2013 06:17 AM

 

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BERLIN — German unemployment unexpectedly declined in January, adding to signs that Europe’s largest economy is gathering pace.

The number of people out of work fell a seasonally adjusted 16,000 to 2.92 million, the Nuremberg-based Federal Labor Agency said Thursday.

Economists had predicted an increase of 8,000, the median of 31 estimates in a Bloomberg News survey showed. Joblessness declined by 2,000 in December instead of a previously reported gain. The adjusted jobless rate dropped to 6.8 percent this month, matching a two-decade low.

The Bundesbank said last week the economy appears to be recovering from its fourth-quarter slump, when gross domestic product may have dropped as much as 0.5 percent.

Confidence among entrepreneurs and investors rose more than economists estimated in January and a gauge of activity in service industries climbed to a 19-month high.

“Improving confidence is omnipresent,” said Thomas Gitzel, chief economist at VP Bank AG in Vaduz, Liechtenstein. While companies are beginning to be more optimistic about the economic outlook, “the return to job creation at considerable scale will be long in coming, also because the order situation hasn’t improved yet.”

The euro was little changed after the report and traded at $1.3565 at 9:58 a.m. in Frankfurt. German bonds stayed higher, with the yield on the country’s 10-year bunds down 5 points at 1.67 percent.

Cold Weather

Today’s decline in unemployment may not yet be a turning point, said Frank-Juergen Weise, President of the Federal Labor Agency.

“There’s a chance the cold weather in the second half of January may bring an increase in unemployment in February,” he said.

Still, German small- and medium-sized companies plan to add employees this year even as most of them expect the economy to stagnate, a poll of more than 3,000 businesses by the BVMW lobby of medium-sized firms showed last month.

“The German labor market is in a good position,” said Anatoli Annenkov, an economist at Societe Generale in London. “Wages are fairly robust and inflation is coming down. Real income is growing and domestic demand may help the economy to expand again in the first quarter of this year.”

Higher Earnings

SAP AG, the biggest maker of business-management software, forecast a gain in full-year earnings of as much as 12 percent on Jan. 23 as the company adds Internet-based programs to attract users.

While policy makers are still cautious to call an end to the debt crisis that’s pushed the euro-area economy into recession and forced five of its 17 members to seek bailouts, they are starting to become more optimistic.

“The fire is under control,” German Deputy Finance Minister Steffen Kampeter told the BBC in a radio interview broadcast this week. “But we have to take care it will not start again.”

RWE AG, Germany’s second-biggest utility, plans to counter a “challenging” year by cutting investments by as much as 50 percent to offset losses from the phasing-out of nuclear power in the country, Chief Executive Officer Peter Terium said on Jan. 27.

Slowing Growth

German economic growth slowed to 0.7 percent in 2012 from 3 percent in 2011 and the Bundesbank predicts economic expansion will decelerate further to 0.4 percent this year. That compares to a contraction of 0.3 percent in the euro area, the country’s biggest export market.

Foreign sales dropped 2.5 percent in November amid weaker demand from the currency bloc, where services and factory output contracted for a 12th month in January.

France, the region’s second-largest economy, may succumb to recession in the first quarter and the slump in Spain, where one of four people is without a job, is deepening.

“The German labor market has lost a bit of its strength in the past months,” said David Milleker, chief economist at Union Investment GmbH in Frankfurt. “But it is now on its way to recovery and I expect a further gain in employment later this year.”

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