German unemployment falls to lowest since reunification

Financial Times Financial Times

Economists call for cut in government spending to prevent economy

Germany’s thriving jobs market has pushed unemployment to its lowest level since the country’s 1990 reunification and deepened divisions over how to deal with the strength of the eurozone’s largest economy.

The national jobless rate fell to 6 per cent in October, the country’s labour agency said, as a group of prominent economists called on Berlin to cut government spending to cool what they say is an economy at risk of overheating.

Other measures of the economy such as the closely watched purchasing managers’ index for manufacturing — which reached its highest level since early in 2014 — have also been showing the revival of the eurozone’s largest economy.

The German economy’s strength has led to calls for Berlin to use a larger than expected budget surplus in the first half of this year to boost spending. The European Central Bank and the International Monetary Fund have said that using this “fiscal space” would help to boost growth in Germany and in the broader single currency area.

But that advice was challenged by Germany’s Council of Economic Experts, an influential collection of five academics. They said on Wednesday that Berlin should do the opposite and cut spending — a move they say would help to prevent an unsustainable boom, and subsequent crash.

“Additional fiscal stimulus is currently not appropriate. Fiscal policy is already procyclical,” said the council’s report, presented to Chancellor Angela Merkel on Wednesday.

Most economists expect the strong labour market to boost economic growth as Germans, buoyed by more job market opportunities, continue to hit the shops. Rainer Sartoris, economist at HSBC, said: “The healthy job creation and low unemployment rate is likely to continue to support consumer spending in Germany over the next quarters.”

Timo Klein, an economist at IHS Markit, a data and research firm that compiles the purchasing managers’ indices, said years of falling unemployment were “an important factor bolstering German consumer demand” — one of the most important drivers of growth in recent years.

Mr Klein added that while a rise in the number of refugees seeking work could push up the jobless rate, the longer-term impact of more immigration could prove favourable in helping Germany deal with the effects of an ageing society. “The working-age population and also labour supply will not decline any time soon, instead increasing further at least for several years,” he said.