German unemployment rockets

For the first time since 2009, unemployment in Germany is on the increase. While the increase was minimal, the upward shift was enough to raise concerns about what will happen in the coming months. With internal factors within Germany’s economy, as well as issues that have to do with what is happening in the Eurozone, there is some validity to the fears that what was a slight increase may be the beginning of a new trend.

One of the reasons for the unemployment increase in Germany has to do with changes in the manufacturing segment of the economy. Simply put, there is not much hiring going on, while some jobs have been eliminated, due to plant closures, shift cutbacks or temporary layoffs caused by falling demand for the goods produced. The losses were sufficient to create fears among German investors, who are already somewhat wary of making many changes in their portfolios, owing to the precarious financial status of some of the other nations within the EU. Coupled with concerns that there may also be cutbacks within the banking industry, employment has taken quite a beating.

There are those who are advising caution when it comes to interpreting how the current shift in employment figures will impact the German economy as a whole. Alexander Koch, an economist at Munich-based UniCredit SpA felt that it is too early to place too much emphasis on what may be nothing more than a temporary and short-lived phenomenon. “The latest monthly rise in the adjusted figure should not mark the end of the impressive upswing on the German labour market,” said Koch. “Despite the recent strong deterioration in the global economic environment, corporate employment plans do not signal an imminent turnaround.”

Lothar Hessler, of HSBC Trinkaus & Burkhardt AG (TUB) in Duesseldorf, also felt that taking the increase in stride would be wise. “It’s too early to call this a trend change in the labour market, but it shows that growth forces are weakening”, Hessler said in a recent interview. “The dynamism of the economic upswing is lessening more than thought.”

Some of the decrease has to do with international corporations planning to shut down German operations and move them to other parts of the world. Whirlpool Inc, for instance, plans to move approximately 5,000 jobs to facilities in Poland. Other companies, like Adidas and AMD also have plans to curtail operations, not only in Germany, but also other locations as well. Even the steel industry is expected to review operations in the months ahead, possibly resulting in employee reductions that will help to keep the current trend going.

According to the OECD, international issues are playing as much, if not more, of a role in the unanticipated rise in German unemployment figures. The outcome of efforts throughout the European Union to shore up failing economies in Greece and other nations will probably exert more influence on what happens to the German economy.