German Unemployment Rises Again In April

German unemployment rose for the sixth straight month in April. The number of people out of work increased a seasonally adjusted 58,000 to 3.46 million, according to the Federal Labor Agency. The seasonally adjusted unemployment rate rose to 8.3 percent from 8.1 percent in March.

So while an increasing volume of data suggest confidence across Europe is stabilizing and the recession slowing, the continued increase in unemployment may well weaken consumer spending and help prolong the recession. And with PMI surveys showing the employment output as bleak both in the service and manufacturing industries further increases in unemployment now seem inevitable.

Job Creation Turns Negative In March


The number of those employed in Germany was down year on year in March for the first time in several years. According to provisional results from the Federal Statistical Office total March employment in Germany was 39.89 million - a decrease of 46,000 (–0.1%) on a year earlier. The last time the number of persons in employment decreased from the same month a year earlier was in February 2006.



Generally employment increases in March due to the usual spring rebound in economic activity. Over the last three years employment was up by an average 138,000 persons from February. This March, however, the increase was only 53,000 (+0.1%). The Federal Statistics Office noted that the significant extension of the short-time work probably rescued the numbers from being even worse.



Seasonally adjusted the total number of employed was 40.18 million in March, a seasonally adjusted decrease by 27,000 persons (–0.1%) on February.

In Labour Market Terms The Worst Is Far From Over

The German economy is still in a serious rcession, with exportslikely to be down by 23 percent in 2009 according to the country’s leading economic institutes. As such it is clear that the contraction “is consuming the usual spring rebound in the labor market,” as Labor Agency President Frank-Juergen Weise put it last week. German unemployment has now beenn increasing since last November after falling steadily for more than three years. The economy is expected to lose some 50,000 jobs per month on average this year, according to the most recent government estimates, and this despite programmes which allow companies to keep workers on their payrolls when orders are slack. Some 24,000 companies with 650,000 workers signed up to the programme in Marcg, around 7,000 companies more than in February, according to the Labor Ministry data.

The German government has so far implemented two economic stimulus programs, amounting between them to €80 billion, or 3.2% of GDP, of which 1% of GDP has its effect in 2009. At first glance, this is indeed less than the American program, which totals 6.2% of GDP, of which 2% will be spent in 2009, but the built-in flexibility of German'd extensive social-welfare system also needs to be taken into account.

The German state recorded a budget deficit of just 0.1% of GDP in 2008, but this, according to a recent OECD forecast, will soar to 4.5% of GDP in 2009. Thus, the economic stimulus provided by the German state budget will amount to something like 4.4% of GDP in 2009.

According to the OECD, the annualized flow of German goods exports from January 2008 to January 2009 declined by $173 billion more than the corresponding flow of imports fell, which means that Germany’s annualized trade surplus fell by the same amount. This is the strongest decline in net foreign demand facing a single country, or, equivalently, the strongest increase in a country’s net demand for foreign goods. Japan, for example, has confronted only a $157 billion decline in its annualized trade balance, while China’s annualized trade surplus increased by $249 billion. In other words, from January 2008 to January 2009, China withdrew $249 billion in annualized demand from the world economy, whereas Germany soaked up a $173 billion net decline in external demand and Japan a $157 billion one.

German Exports Creep Up Again In March

German exports were up for the first time in six months in March, adding to signs that the pace of the economic contraction slowed slighly as we entered the spring. Exports, adjusted for working days and seasonal changes, were 0.7 percent from February, when they fell 1.3 percent, according to the latest data from the Federal Statistics Office. Year on year exports were down 15.8% following a 23.5% drop in February and a 23.2% drop in January.




German imports increased 0.8 percent in March from the previous month, when they dropped 4.8 percent. The trade surplus widened to 11.3 billion euros from 8.6 billion euros in February. The surplus in the current account, the measure of all trade including services, was 10.2 billion euros, up from 6.8 billion euros. On a seasonally adjusted basis exports were up by 0.4 billion euros from February, which means you can just barely notice the change on the chart below: ie there is still a very long way to go here.




The euro-area economy, Germany’s largest trading partner, will probably shrink 4 percent this year and 0.1 percent in 2010, the European Commission said on May 4. In Germany, the economy may not return to growth before the second half of 2010, Bundesbank President Axel Weber said on May 4.


Industrial Output

German industrial production held more or less steady in March, for the first time in six months. Output was unchanged from February, when it dropped 3.4 percent, according to the latest data from the Economy Ministry in Berlin. Manufacturing industry continued to contract however, and was down 0.4% on the month, and by 22.8% year on year.



That being said, German industrial output levels are now very low (see chart below), and are roughly comparable with those registered in 1999/2000.

European Economic Sentiment Indicator Recovers Slightly

In April, the Economic Sentiment Indicator (ESI) for the EU and the Eurozone picked up for the first time since May 2007 (excluding a small blip in March 2008 for the EU). The Business Climate Indicator (BCI) for the Eurozone increased in April.


The rebound in the ESI resulted from a clear improvement in sentiment in industry and among consumers, which increased by 3.5 points in the EU, and by 2.5 points in the Eurozone, to 63.9 and 67.2 respectively.



ESI in both regions rose by the same amount (3 points), and a smaller increase in services (+1 point in both regions). Retail trade sentiment grew by 2 points in the EU, but fell by 2 points in the Eurozone.

Construction, in contrast, declined in both areas – by 1 point in the EU and by 2 points in the Eurozone. The majority of Member States registered an improvement. Among the largest Member States, Italy (+6.4 points), the UK (+5.1), the Netherlands (+4.2), Spain (+4.1), and Poland (+3.8) witnessed significant increases in sentiment, while the rise was less sizeable in France (+1.0) and Germany (+0.8).

The financial services confidence indicator – not included in the ESI – improved markedly in both areas, by 11 points in the EU and by 16 points in the Eurozone. Compared to March, managers' assessment of business situation and demand for their services augmented significantly. Managers' expectations of demand improved strongly and became positive for the fist time since October 2008.

The quarterly manufacturing survey, carried out in April 2009, indicates a further fall in capacity utilisation since the last survey in January: it now stands at 71.0% in the EU and 70.5 % in the Eurozone – the lowest since 1990.

However, new orders received in the past three months and expectations about export orders in the next three months improved marginally from the low recorded in January.

According to the six-monthly industrial investment survey which was carried out in March and April of this year, managers in most Member States expect a sharp decrease in their investment volumes in 2009 compared to 2008. More specifically, in 2009 real investment is expected to drop by 18% in the EU and by 20% in the Eurozone. This represents a significant downward revision of expectations from the -5% reported in both regions in the previous investment survey (conducted in autumn 2008).

The Business Climate Indicator (BCI) for the Eurozone increased in April. This is the first improvement since May 2008. The indicator nevertheless remained at a very low level, pointing to another negative outcome for year-on-year industrial production growth in March, after the record fall registered in February. Given the current levels, it also suggests that annual industrial production growth will remain clearly subdued in April.

The rise in the BCI reflects an improving situation in most of its underlying components. Managers' production expectations picked up clearly in April, while the production trend observed in recent months improved only slightly. Their assessment of current overall order books and stocks of finished goods recovered marginally from last month's level, though export order books continued to worsen.