German unemployment rising to highest level in almost a decade

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

However, the 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," said IW labour market expert Holger Schaefer.

"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 and  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.

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 the 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, can usually only do this for a short time. 

Schaefer said: "As the period of weakness extends, it is increasingly likely staffing levels will have to be adjusted as permanent declines in productivity will undermine the competitiveness of companies."

Reuters