Germany's unemployment rate rose to an 11-month high in July, evidence that an export-driven revival in Europe's largest economy has so far failed to prompt executives to hire more staff.

The unemployment rate rose to 10.6 per cent from 10.5 per cent in June, the Nuremberg-based Federal Labour Agency said. The number of jobseekers in Germany rose a seasonally adjusted 11,000 to 4.39 million, the sixth straight monthly increase.

Economists had expected unemployment to increase by 5,000, the median of 34 forecasts in a Bloomberg News survey showed.

"The construction industry still has serious problems; consumers are still holding back very much," said Walter Had, chief executive of Weru AG, a maker of windows and doors in Rudersberg in Southwest Germany that shed 180 staff last year. Another 150 of Weru's 1,050 jobs are at risk, Had said. "There is no demand; prices are falling and margins are shrinking."

A rise in exports in six of the past seven months will push the German economy to expand 1.8 per cent in 2004, after three years of stagnation, Chancellor Gerhard Schroeder's panel of economic advisers predicted last month. The export growth has yet to filter through to the domestic economy, where depressed consumer sentiment has deterred companies from building factories and hiring workers.

The labor agency revised an originally reported fall of 1,000 in unemployment in June to an increase of 2,000. Employment in May fell 10,000 from April. The number of people with a job has risen in only one month over the past two and a half years. Employment figures lag those for joblessness by two months.

"All the signs point to the German economy recovering but it hasn't affected the labour market yet," the labour agency said.

Continental AG, the world's fourth-largest tyremaker, Monday raised its profit target for this year because of increasing demand from customers including Porsche AG and Bayerische Motoren Werke AG, which have increased their sales abroad. Continental, the best performer this year on Germany's benchmark DAX index, cut costs by moving production to countries such as Romania where wages are lower than in Germany.

The BDI industry association, which represents 107,000 companies including DaimlerChrysler AG and Siemens AG, has raised its forecast for export growth from the world's No 2 trading nation to 8 per cent for 2004, its president, Michael Rogowski, said July 21. Still, "the strong export impetus isn't spreading to domestic demand as we had hoped," he said.

Consumer confidence sank to a one-year low in July, a report by Nuremberg-based consumer research group GfK showed last week. Retail sales in the first six months fell an inflation-adjusted 1.4 per cent from the same period a year earlier, the Federal Statistics Office said Friday.

"The labour market won't show much of an improvement this year," said Eugen Haegele, who helps manage 11 billion euros (US$12.32 billion) in stocks and bonds at SuedKA in Frankfurt. "Unfortunately there is no sign of a breakthrough in consumer spending."

Volkswagen AG, Europe's largest carmaker, plans to cut 5,000 jobs by 2005 to boost profit. Nestle Deutschland AG, the German unit of the world's largest foodmaker, said it will eliminate about 230 jobs by the end of next year because of the "extremely difficult" situation in the German economy.

Consumer spending accounts for more than half of the German economy, while exports make up less than a third. The Essen-based RWI institute, which is the most optimistic of the six main State- funded economic institutes, forecasting growth of 2.1 per cent for this year, expects foreign trade to contribute 1.3 percentage points to growth, with consumer spending only adding 0.2 percentage points.

As he seeks to boost hiring and cut the jobless total, Schroeder has merged social-welfare and long-term unemployment benefits, increased pressure on the unemployed to accept low-paid jobs, reduced the rights workers have against dismissal, increased health-care contributions and frozen pensions.

Those measures have cut support for Schroeder's Social Democratic Party half-way through his second four-year term. A poll for Stern magazine and RTL Television published July 28 put the Social Democrats on 26 per cent, compared with 43 per cent for the main opposition Christian Democratic Union and Christian Social Union.

Schroeder's "erratic" economic policies have "deeply unsettled" companies and consumers, the BDI's Rogowski said July 21. Schroeder should stay the course and resist critics in his own party as the measures decided on "won't fail to have positive effects in the long run," Rogowski said.

The RWI and the five other top institutes have said Germany's jobless rate will not fall below 10 per cent this year and next. The International Monetary Fund expects the US jobless rate to decline to 5.4 per cent next year from 5.5 per cent and predicts Japan's rate will be steady at 4.9 per cent.

Economics and Labour Minister Wolfgang Clement said last week growth of as much as 1.8 per cent this year would not be enough to lower unemployment. "We need to have more than 2 per cent growth and I think we can achieve that next year," he said.

A breakdown of Ifo's July survey, also published last week, showed that executives in German manufacturing industry and the western German construction industry plan to eliminate jobs at the same pace as before.

(China Daily 08/05/2004 page11)