Market Analysis

Germany's economic fragility is beginning to impact its labor market, with projections indicating a surge in unemployment levels to the highest in nearly a decade, as outlined in a study by the German Economic Institute (IW).

According to a preview of the study obtained by Reuters ahead of its official release, unemployment is forecasted to average just under 2.8 million this year, marking the highest figure since 2015. Nonetheless, this number remains notably lower than the peak observed in 2005, when nearly 4.9 million were unemployed and Germany faced the label of being the "sick man of Europe."

Holger Schaefer, an expert on the labor market at IW, noted that despite the previous year's stability amidst recession, the current year is witnessing a more pronounced impact of the economic downturn. He highlighted a lack of growth in companies' employment plans, with a significant drop in newly registered job vacancies, reaching the lowest level in five years by March.

Projections from IW suggest that Germany's unemployment rate will climb to 6% this year. Conversely, other prominent German economic institutes anticipate a slightly lower figure of 5.8%, with a further decrease to 5.5% expected next year. Their spring report for the German government foresees just under 2.7 million unemployed individuals by 2024.

Despite a contraction of 0.3% in the German economy in 2023, the labor market exhibited resilience, with employment figures increasing by 340,000 or 0.7%. 

Experts at IW attribute this rise to labor retention practices, where companies retain skilled workers even in times of reduced workload, anticipating future labor shortages due to demographic shifts. However, this strategy may have limitations, as prolonged economic weakness could necessitate adjustments in staffing levels, potentially undermining companies' competitiveness due to sustained declines in productivity.

Paraphrasing text from "Reuters" all rights reserved by the original author.