UPDATE 1-German unemployment rises for sixth month running

Thu Sep 27, 2012 2:37pm IST

* German jobless up by 9,000 in September, in line with f'cast

* Remains close to post-reunification low, still outperforms peers

* Suggests domestic economy won't compensate for weaker exports

* Jobless could become problem for Merkel ahead of elections (Adds details, background, quotes)

By Sarah Marsh

BERLIN, Sept 27 (Reuters) - German unemployment rose for a sixth month running in September, suggesting domestic demand might not be able to compensate for weakening exports amid the euro zone crisis and power growth in the bloc's number one economy.

Joblessness remains near to its lowest level since German reunification more than two decades ago, and the unemployment rate held steady at 6.8 percent, contrasting starkly with the sickly labour market in many peers, including France and Spain.

But it rose by 9,000 in September, as the global slowdown and the euro zone's three-year-old crisis weigh on exports and prompt companies to hold back on investment, and economists said they saw it rising more in the months ahead.

Higher jobless figures could become a headache for German Chancellor Angela Merkel, who faces an election next year, and may reduce the willingness of average Germans to continue to bail out southern euro partners like Greece.

"The labour market is, slowly but surely, losing steam and all forward-looking indicators also don't bode well," said ING economist Carsten Brzeski.

"It is doubtful whether private consumption can really take over the baton as main growth driver for the German economy."

German business sentiment dropped for a fifth straight month in September, raising fears of recession, data showed on Monday.

The economy remained resilient throughout much of the crisis, recovering swiftly from the 2008/09 financial crisis, although growth slowed in the second quarter of this year to 0.3 percent from 0.5 percent in the first.

The strength of Germany's labour market, a product of structural reforms undertaken in the mid-2000s and years of wage restraint, has been fundamental in fuelling domestic demand. It has prompted many to herald the "German job miracle".

The contrast with other European countries is stark. In Spain, youth unemployment stands at around 50 percent, while data on Wednesday showed the number of unemployed in the euro zone's second largest economy of France topped the 3 million mark in August for the first time in 13 years.

The French industry ministry said earlier this week that France should copy Germany's labour model to help its struggling companies regain a competitive edge.


Many experts hoped this robust German labour market would continue to fuel private consumption and thus drive economic growth at home, and in the struggling euro zone via imports.

But signs of weakness are increasing. Big German firms like Metro, the world's No.4 retailer, Lufthansa and Deutsche Bank are slashing thousands of jobs.

Others like Opel, the German unit of U.S. automaker General Motors, and steelmaker ThyssenKrupp, are returning to "Kurzarbeit", a government-subsidised short-time work scheme that was used widely by German industry during the global financial crisis.

"The debt crisis is taking its toll," said Andreas Scheuerle at Dekabank. "Companies are holding back on investing."

Thursday's Labour Office data showed the number of people out of a job rose to 2.911 million in September from 2.902 million in August, its highest level since October last year.

"The development is of course still very, very moderate," said Peter Meister at BHF Bank. "In the next couple of months seasonally adjusted unemployment will rise somewhat more strongly than has been the case until now." (Additional reporting by Michelle Martin; Edited by Madeline Chambers)