German unemployment drops least in year amid war in Ukraine

GERMAN joblessness dropped at the slowest pace in a year, pointing to labour-market vulnerabilities as the war in Ukraine and surging inflation weigh on Europe’s largest economy. 

Unemployment fell by 13,000 in April, keeping the jobless rate at the pre-pandemic level of 5 per cent. Economists had estimated a reduction of 15,000, and the decline is the smallest since April 2021. In the wider euro area, the unemployment rate dropped to a record-low 6.8 per cent in March.

“The arrival of spring and the easing of coronavirus measures is supporting the labour market’s continued recovery,” said Federal Labor Agency chief Detlef Scheele. “However, the development is being slowed down by Russia’s war against Ukraine.”

The outlook for Germany’s economy has darkened in recent weeks as the country’s important manufacturing sector suffers from input shortages and record prices pressures resulting from the war in Ukraine. The latest Covid outbreak in China and subsequent lockdown measures risk aggravating these problems. 

A business survey by S&P Global confirmed a loss in momentum among German factories last week, while warning that the slowdown will eventually affect hiring activity. Scores of companies have warned of the risks they’re facing. 

Services have remained more resilient after coronavirus restrictions were lifted. Even so, the government in Berlin recently slashed its growth forecast to 2.2 per cent for 2022, down from a previous prediction of 3.6 per cent. 

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For now, the downward trend in unemployment is also continuing in the 19-nation euro area, with the jobless rate reaching a new low in March after the prior month was revised higher, according to data released on Tuesday (May 3). Labour-market strength that might support stronger wage gains is cementing the European Central Bank’s resolve to withdraw monetary stimulus. 

In both the euro region and Germany itself, things could turn out significantly worse if there’s any disruption to the flow of Russian natural gas. Such a scenario would probably tip that country into recession, economists have warned.