Rise in German unemployment points to cracks in eurozone labour market

Stay informed with free updates

Simply sign up to the Eurozone economy myFT Digest — delivered directly to your inbox.

The number of unemployed people in Germany rose by the biggest amount in more than a year as vacancies fell in October, adding to signs of cracks in Europe’s labour market.

The region’s workforce has remained resilient despite a sharp slowdown in growth. But economists and policymakers believe the labour market is weakening as the stagnating economy and higher borrowing costs drive more companies to cut jobs. The German unemployment rate climbed from 5.7 per cent in September to 5.8 per cent last month — the highest level in the EU’s largest economy since June 2021. 

“The lay-off rate in Germany has started to increase a bit, but from the lowest level we have ever seen,” said Enzo Weber, head of research at the Institute for Employment Research in Nuremberg. “We are starting to see the delayed effects of last year’s energy price shock.”

Several German companies have outlined plans to cut jobs in recent weeks, including the country’s biggest lender Deutsche Bank and chemicals producers BASF and Lanxess.

Weber said his institute’s European unemployment barometer had fallen to its lowest level since the middle of 2020 when lockdowns during the coronavirus pandemic brought the economy to a standstill.

Luis de Guindos, vice-president of the European Central Bank, said there were signs that the labour market was struggling to remain “a bright spot” for the eurozone economy. “Fewer new jobs are being created, including in services, which suggests that the cooling of the economy is gradually feeding through to employment,” he said in a speech in Madrid this week.

Germany’s federal employment agency reported a seasonally adjusted increase of 30,000 unemployed people from a month earlier, taking the jobless total in Europe’s largest economy to 2.61mn, up 165,000 from a year earlier.

Germany’s unemployment rate has risen from 5 per cent in March 2022, shortly after Russia launched a full-scale invasion of its neighbour. The agency said the arrival of more than 1mn Ukrainian refugees to Germany had added 0.4 percentage points to its jobless rate.

Many German companies are still suffering from labour shortages, which were reported by 43 per cent of companies surveyed by Munich’s Ifo Institute in July. Economy minister Robert Habeck last month blamed “desperate” labour shortages for the expected 0.4 per cent contraction of the German economy this year, as he called for an increase in skilled immigrants to bolster its ageing workforce.

But the agency said job vacancies posted by companies had fallen to 749,000 in October, down 12,000 from the previous month and 98,000 from a year earlier. 

“You cannot defy gravity forever and you have what looks like a recession now in Germany,” said Ludovic Subran, chief economist at German insurer Allianz.

While eurozone unemployment is expected to stay at a record low of 6.4 per cent when data for October is released on Friday, Subran forecast both the German and eurozone unemployment rates would rise by half a percentage point next year as key sectors lay off workers.

“The construction sector is in decline and that is a very labour-intensive industry,” he said.

Germany’s economy shrank 0.1 per cent in the three months to September from the previous quarter, according to data published this week, confirming its status as one of the world’s weakest major economies.

Higher interest rates have hit the construction sector, causing a sharp decline in housebuilding. Construction activity fell 2 per cent in Germany and 1.3 per cent in the eurozone in the three months to September compared with the previous quarter.

Andrea Nahles, head of Germany’s employment agency, said the country’s long period of stagnation stretching back to last winter “cannot remain without visible consequences for the labour market”. But she added: “In view of the economic data, it is holding up comparatively well.”

Yet last month’s S&P Global survey of purchasing managers at eurozone businesses found falling orders had “prompted firms to reduce employment for the first time since January 2021”. Manufacturers shed jobs at the fastest rate for three years, it found, while “hiring came close to stalling in the services sector”.