Tuesday, July 31, 2012

Gradual slowing of German labour market continues

German unemployment increased by a non-seasonally adjusted 66,900 in July, bringing the number of unemployment to the highest level since April. As a warning signal, this is the strongest July worsening since 2004. In seasonally-adjusted terms, unemployment also increased slightly, still leaving the seasonally-adjusted unemployment rate unchanged at 6.8% for the eighth month in a row. Earlier today, retail sales disappointed in June, dropping for the third consecutive month.

With high employment, dropping inflation and latest wage increases, the labour market should continue to be “the” crucial driver of domestic demand this year. To some extent, the labour market has been Germany’s active immunisation against the ongoing Eurozone crisis. However, signs that this immunisation is fading away are hard t miss. Employers have continuously downscaled their recruitment plans and employment expectations in the manufacturing industry have dropped to the lowest level since April 2010. Moreover, vacancies continue to drop, the demand for temporary work is slowing and some companies have even started to introduce short-time work schemes again.

The looming slowing of the German labour market could also put a quick end to a tender new trend: labour mobility in the Eurozone. The absence of labour mobility is often cited as one of the main problems of the monetary union. However, the current crisis has actually led to first signs of (involuntary) labour mobility; from the Eurozone periphery to Germany. Sine 2008, immigration to Germany from Spain and Greece has more than doubled. While during the same period, German employment increased by more than 3%, the number of employees with a Portuguese, Spanish or Italian nationality increased by around 6%. The number of employees with a Greek nationality increased by less than 3%. Although there still is a lack of highly skilled workers and experts in some sectors (eg in engineering), the cooling of the German labour markets should limit possibilities for further Eurozone labour market mobility.

All in all, the German labour market is clearly losing momentum. Given the high level of employment, there is no need to panic. However, indications are increasing that light-hearted times are coming to an end.

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