German Unemployment Rises for a Fourth Month as Slump Deepens

By Rainer Buergin

Feb. 26 (Bloomberg) -- German unemployment rose in February for a fourth straight month as falling exports and a deepening recession prompted companies to cut production and jobs.

The number of people out of work rose a seasonally adjusted 40,000 to 3.31 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast an increase of 60,000, according to the median of 31 estimates in a Bloomberg News survey. The adjusted jobless rate rose to 7.9 percent from 7.8 percent.

Heidelberger Druckmaschinen AG and ThyssenKrupp Steel AG are among companies cutting jobs as demand sags. The International Monetary Fund expects the German economy, Europe’s largest, to contract 2.5 percent this year and mounting concern that job losses will increase is turning voters from both parties in Chancellor Angela Merkel’s coalition before elections this year.

“The outlook for the labor market is quite alarming,” Stefan Bielmeier, an economist at Deutsche Bank AG, said Feb. 23 in an interview. “For now, shortened work time is distorting how bad things really are.”

Some companies are reducing working hours before cutting jobs after the government said it would cover companies’ social- insurance payments for workers put on short time. Nuremberg-based car parts-maker Leoni AG, which reduced its workforce by 3,000 in the fourth quarter, has cut weekly work time and introduced “other personnel measures” to pare costs. Home-improvement retailer Praktiker AG also plans to shorten work hours.

Job Cuts Planned

“Companies are hanging on to staff for now because they expect a recovery in the second half of the year,” said Bielmeier, who predicts the German economy will shrink as much as 3.5 percent in 2009. “For the first half of the year we expect a monthly increase in unemployment of 50,000, after that it’ll be 100,000” on average.

The share of German companies planning to cut jobs rose to 30 percent in January from 18 percent in October, according to a survey of 25,000 companies by the DIHK chambers of trade and industry. In unadjusted terms, the number of jobless increased by 63,121 in February, today’s report showed.

Plant and machinery makers plan to reduce output and cut as many as 25,000 jobs this year, the VDMA machine makers’ association has said. Heidelberger Druck, the world’s largest printing press maker, is cutting around 2,500 jobs.

Coalition Support Wanes

As the labor market outlook deteriorates, support for the parties in Merkel’s coalition of Christian Democrats, their Christian Social Union sister party and the Social Democrats is waning, surveys show.

Support for the CDU/CSU remained at 34 percent, below the 35.2 percent share of the vote the bloc won in the 2005 federal election, a weekly Forsa poll published Feb. 25 showed. The Social Democrats gained 1 percentage point to 23 percent compared with 34.2 percent in 2005.

The pro-business Free Democratic Party, which is calling for bigger tax cuts to spur growth, held at a record 18 percent for a third week. Germany will hold national elections on Sept. 27.

Concern among voters may grow as the economy slides deeper into a recession. Exports slumped 7.3 percent in the fourth quarter, the Federal Statistics Office said yesterday. Business confidence dropped to a 26-year low in February, a report showed earlier this week.

Sixty percent of respondents in an Infratest dimap poll published on Feb. 6 said the government plans won’t help solve the country’s economic woes, a 9 point increase from January. Lawmakers last week approved to more than double the fiscal stimulus to about 80 billion euros ($102 billion).

ECB Rates

The European Central Bank will probably cut its benchmark interest rate by 50 basis points to 1.5 percent next month, the lowest in the euro region’s 10-year history, a survey of economists shows. The central bank has reduced the rate from 4.25 percent since early October.

According to the latest comparable data from the Organization for Economic Cooperation and Development, Germany’s jobless rate rose to 7.2 percent in December, matching the rate in the U.S. for the first time since 1993. Unemployment in France rose to 8.1 percent from 8 percent.

In western Germany, the number of people out of work rose by a seasonally-adjusted 34,000 in February, while the number in eastern Germany increased by 6,000, today’s report showed.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net.