German Unemployment Up More Than Expected, Damping Rebound Hopes

(Bloomberg) -- German unemployment rose more than anticipated — underscoring expectations that Europe’s biggest economy will recover only gradually this year.

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Joblessness rose by a seasonally adjusted 25,000 in May, while economists polled by Bloomberg had expected a gain of just 7,000. The unemployment rate held at 5.9%, the Federal Labor Agency said Tuesday.

“The spring recovery hasn’t really taken off this year,” agency head Andrea Nahles said in a statement.

Germany is recovering from an economic contraction at the end of 2023, with factors like mild weather helping to spur output that rose 0.2% in the first quarter. Analysts see growth continuing for the rest of the year as consumption rebounds and industry benefits from firmer demand.

The labor market has remained resilient even in times of weakness, with companies holding on to workers amid widespread shortages of skilled staff. This, in turn, means firms will probably put their existing employees to work before hiring more, if economic activity picks up.

An early indicator by the German Institute for Employment Research fell last month, with researcher Enzo Weber saying the labor market’s strength during the economically weak winter means there’s limited recovery potential now.

Analysts reckon households will be an important growth driver, mainly as their incomes continue to catch up to the inflation experienced in recent years. Real wages rose at a record pace in the first three months of the year and are expected to increase further in the coming quarters.

--With assistance from Kristian Siedenburg and Joel Rinneby.

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