Unemployment jumps as economy slides

Data released on Thursday from the Federal Labour Agency showed that 8.3 percent of the German workforce were out of work in January, up from 7.4 percent in December. Even allowing for seasonal factors, unemployment soared 56,000 compared to the previous month, well above analyst forecasts for an increase of about 34,000.

This represents the sharpest rise in seasonally-adjusted unemployment for almost four years, Jennifer MacKeown from Capital Economics said. The main reasons for the steep climb in the jobless figures were the economic downturn and the unusually cold weather, the labour office said, adding that the increase was "much stronger than in the past two years."

"The economic slowdown is now reaching the jobs market," the head of the labour office, Frank-Jürgen Weise, said.

He added he expected the misery on the jobs front to continue as the recession bites ever deeper into Germany's ailing economy. "We are definitely prepared for a further rise in unemployment," he said.

Thilo Heidrich, an economist at Postbank, noted that "alongside job cuts, the demand for labour on the part of companies has shrunk dramatically."

"Recession has finally arrived on the German labour market," said Martin Lueck from UBS.

Germany is forecast this year to suffer its worst economic slump for 60 years, Berlin has said, with output expected to shrink by 2.25 percent. By the time Chancellor Angela Merkel goes to the polls in September seeking a second term, around 10 percent of the workforce could be out of work, economists have warned.

Rising unemployment and a stream of dire economic news mean the economy is likely to be at the centre of the election campaign which kicks off in August, pitting Merkel's conservative party against the Social Democrats (SPD) fronted by Frank-Walter Steinmeier.

In a bid to stave off the worst effects of the recession, Merkel's government - a coalition of her conservatives and the SPD - has put together a €50-billion ($65-billion) stimulus package, the largest in modern German history.

The raft of measures -- the second such plan in a matter of months - included a huge increase in infrastructure spending as well as sweeping tax cuts. Merkel wants it to pass both houses of parliament by the end of February.

But the package comes too late for thousands of workers who have lost their jobs as companies in the world's largest exporter cut back as demand falls. On Wednesday, the world leader in professional software, Germany's SAP, said it would cut more than 3,000 jobs globally this year.

Nevertheless, despite the gloom, there are a few bright spots on Germany's economic horizon.

For one, unemployment is still lower than at this time last year when there were 170,000 more people out of work. There are also very tentative signs that the worst of the economic storm may be behind Germany, as firms begin to feel more confident about the future.

On Tuesday, a closely-watched index of German business confidence rose unexpectedly, with companies saying they were less gloomy on the next six

months than before.

While analysts were keen to stress this must be interpreted cautiously, Alexander Koch from Unicredit called it a "a strong ray of hope that the vicious circle is broken. He said the German economy could stabilise in the second half of the year although it was unlikely to rebound strongly.