German unemployment seen rising to highest level in almost a decade

By Klaus Lauer

BERLIN, April 26 (Reuters) - Germany's economic weakness is finally taking a toll on the labour market, with the number of unemployed workers expected to rise to the highest level in almost a decade, according to a study by the German Economic Institute (IW).

The study, which was seen by Reuters ahead of its release on Friday, showed that unemployment will rise to an average of just under 2.8 million this year, the highest level since 2015.

However, that figure is well below the peak in 2005, when almost 4.9 million people were unemployed and Germany was considered the "sick man of Europe."

"Last year, the labour market was quite stable, despite the recession," IW labour market expert Holger Schaefer said. "But this year we are feeling the consequences of the economic crisis more strongly."

Companies' employment plans do not indicate any growth for the rest of the year, Schaefer said. "The number of newly registered vacancies fell to its lowest level in five years in March," he said.

Germany's unemployment rate is expected to rise to 6% this year, according to IW.

Other leading German economic institutes see the unemployment rate at 5.8% this year, falling to 5.5% next year. They forecast just under 2.7 million unemployed people for 2024 in their spring report for the German government.

RESILIENT LABOUR MARKET

The German economy contracted by 0.3% in 2023. Despite the downturn, the number of people employed rose by 340,000, or 0.7%.

IW experts attribute this jump in employment to labour hoarding, as companies tend to retain skilled workers even if they do not have enough work for them, fearing labour shortages in the future due to demographic changes.

Companies, however, usually can only do this for a short period.

"As the period of weakness extends, it is increasingly likely that staffing levels will have to be adjusted, as permanent declines in productivity will undermine the competitiveness of companies," Schaefer said. (Reporting by Klaus Lauer; writing by Maria Martinez; editing by Paul Simao)