German unemployment unexpectedly drops

Frankfurt: German unemployment unexpectedly dropped this month as a slump in manufacturing showed signs of stabilising and the trade tensions that have weighed on exporters eased.

In a report that’s likely to damp any expectations of German fiscal stimulus, the number of people out of work slid by 16,000, compared with estimates for an increase of 6,000. The jobless rate held at 5 per cent, near a record low.

Data this month has shown a rebound in factory orders and a small improvement in business confidence. That’s given credence to the insistence by German Chancellor Angela Merkel’s administration that there’s no immediate case to deviate from its balanced budget, a stance backed by Bundesbank President Jens Weidmann.

Still, after more than a decade of falling joblessness, the risk remains that Germany’s labour market could be at a turning point. Manufacturers have announced more than 80,000 job cuts this year, led by automakers such as Volkswagen AG struggling with a fundamental shift to electric vehicles, and machine-tool makers such as Siemens AG hit by cooling global trade.

The labour agency said demand for new labour has eased. The concern is that job losses will erode private spending, which has supported the economy in recent quarters and helped prevent Europe’s largest economy from falling into a recession this year.

The International Monetary Fund and European Central Bank have called on Germany to dip into its fiscal surplus to bolster public spending. That’s part of a broader call — addressed by ECB President Christine Lagarde in her first major speech — for a new European policy mix in which government investment is stepped up to ease the burden on monetary stimulus.