German Unemployment

The Federal Labor Office said that seasonally adjusted jobless figures in Europe's largest economy fell by 10,000 to 3.15 million in November, double the drop forecast by economists, and was 390,000 less than for the same month last year. The unadjusted jobless rate edged down from 7.2 percent in October to 7.1 percent this month.

Unemployment figures, however, are a lagging economic indicator with Labor Office Chief Frank-Juergen Weise warning that the economic downturn was likely to catch up soon with the German labor market.

Jobless figures set to rise

Economists believe that the number of people out of work in Germany is set to rise in the coming months with companies having already announced layoffs and production cuts.

In particular, this includes key German export sectors, such as chemicals and cars, which have been badly hit by the global economic downturn.

The German auto industry could be poised to axe up to 60,000 jobs in the coming months, the German Automobile Economy Institute warned last week. The country's VDA auto industry association estimates that about one-in-eight jobs in Germany is linked to the automobile industry.

Lower interest rates possible

The prospect of growing job losses in Germany and in the 15-member euro zone is likely to add to the pressure on the European Central Bank to deliver another hefty cut in interest rates when it meets next week.

The Paris-based Organization for Economic Cooperation and Development (OECD) warned this week that 700,000 jobs might be axed in Germany by the end of 2010, as the country grapples with what could be its biggest economic slump since 1949.

German Finance Minister Peer Steinbrueck said this week that the nation's economy could contract in 2009 by up to one percent before the massive stimulus plans unveiled recently around the world gain traction in the second half of the year.

Business confidence in Germany dropped to its lowest in nearly 16 years in November, a key survey released by the Munich-based Ifo Economic Institute said this week.

However, the separate GfK market research index, also released this week, showed German consumer confidence staging a surprise increase on the back of falling oil prices and lower inflation. But, at the same time, the report said consumer economic expectations dropped to their lowest level in about 17 years.

Confidence tied to employment

Moreover, the GfK said the prospects for consumer confidence would now very much depend on how deep the recession is and how the labor market will be affected.

Germany tipped into recession during the third quarter as exports sunk and companies began cutting back on investments.

"On the whole, the economic downturn has worsened and will now have an impact on the labor market, said Hans-Werner Sinn, the president of the IfO Economic Institute, releasing the think tank's latest business confidence survey.

"The export business is expected to weaken at an accelerated pace and plans call for reductions in staff," he said.