February 6, 2003	Thursday	Zul Hijjah 4,1423

FRANKFURT, Feb 5: In an already bad week for Chancellor Gerhard Schroeder, new data on Wednesday showed a surge in German unemployment to a five-year high in January, dealing another heavy blow to the government as it struggles to steer the country out of its current economic slump.

The number of people looking for work in the euro zone’s biggest economy surged to 4.623 million — or 11.1 per cent of the workforce — in January, the Federal Statistics Office in Nuremberg calculated.

That was the highest monthly total since March 1998 and also the highest level seen in the month of January in the past five years.

The main reasons behind the rise were not difficult to pinpoint, said labour office chief Florian Gerster.

Unemployment usually increases during the winter months for seasonal reasons, as companies, particularly in sectors such as the construction industry, lay off employees because of bad weather.

And the end of the year is also an important date for dismissals, so a lot of people usually tend to enter the labour market statistics in January.

But even after taking such factors into account, the dole queues in Germany continued to lengthen last month as the labour markets felt the brute force of the current economic downturn, Gerster said.

The Bundesbank in Frankfurt calculated that in seasonally adjusted terms the jobless total shot up to 4.274 million in January from 4.212 million in December, a much steeper increase than is usual in January.

And the seasonally adjusted jobless rate rose to 10.3 per cent from 10.1 per cent.

Labour office chief Gerster complained that “the first signs of stabilization in the economy are not yet feeding through into the labour markets.”

Observers had hoped that a rise in business and investor confidence last month, as well as an improvement in manufacturing orders and industrial output, might herald a turnaround in Germany’s economic fortunes.

But even if that were the case it would still take some time yet to feed through into the labour markets, Gerster said.

There is usually a time-lag between general economic developments and the labour markets.

Furthermore, while a number of economic indicators were tentatively beginning to point upwards, the trend was still far from consistent, Gerster said.

Thus, a turnaround was only likely to emerge on the labour markets much later this year, he predicted.

An economist at Natexis Banques Populaires, Alexandre Bourgeois, said that while the disastrous state of the labour markets was hardly a surprise, it would nevertheless come as a heavy blow to Chancellor Schroeder whose Social Democrat SDP party suffered humiliating defeats in two regional state elections at the weekend as voters punished the government for its poor handling of the economy.

Economy and Labour Minister Wolfgang Clement said in a statement that “the figures show that the difficult economic environment and the grave structural problems are continuing to hurt the labour market. There’s no getting past these problems and the situation shows just how necessary structural reforms are.”

UBS Warburg economist Holger Fahrinkrug said he believed the rapid deterioration in the jobless numbers “will indeed make increased reform efforts likely in the months ahead.”

But “how great the chance of the reforms actually being implemented depends on political bargaining between the government and the opposition, and on how aggressively the SPD’s left wing and the trade unions defend the status quo,” he cautioned.

Morgan Stanley economist Elga Bartsch said any current labour market reforms “will have no immediate visible effect on unemployment. Indeed, with the economy likely to have slipped back into recession in the fourth quarter of last year and the first quarter of this year, unemployment will continue to rise until the autumn.”

And Commerzbank economist Ralph Solveen said a turn for the better “is unlikely to occur before the end of the year and only if the economy starts to pick up gradually this summer.”

—AFP