European Economies: German, French Unemployment Threaten Growth
European Economies: German, French Unemployment Threaten Growth
March 31 (Bloomberg) -- Unemployment in Germany rose to a postwar record of 12 percent and France's jobless rate matched a five-year high, threatening prospects for economic growth in the dozen nations sharing the euro.
The seasonally adjusted unemployment rate in Germany, Europe's largest economy, climbed in March from 11.7 percent in February, the Federal Labor Agency said in Nuremberg today. France's jobless rate held at 10.1 percent in February. Business and consumer confidence in the euro region dropped this month, a separate report showed.
The lack of job creation is hindering consumer spending, the biggest part of the $10 trillion euro-region economy, and corporate investment. The European Central Bank this month reduced its 2005 growth forecast. Companies including Deutsche Bank AG, Nestle SA and Skis Rossignol SA are cutting jobs.
``The labor markets are preventing consumers from spending,'' said Laurence Boone, a Paris-based economist at Barclays Capital. ``Overall, it's quite difficult. Most business behavior across the euro region is `wait and see.'''
Unemployment is undermining support for German Chancellor Gerhard Schroeder and French President Jacques Chirac, according to recent opinion polls. It's also stoking opposition in France to the European Union constitution, the object of a May 29 referendum.
Germany and France have the highest unemployment among the Group of Seven industrialized nations, compared with Great Britain's 4.7 percent rate and 5.4 percent in the U.S.
Declining Confidence
An index gauging confidence among 35,000 executives declined to minus 8 in March, the lowest since December 2003, from minus 7 in February, the European Commission said in Brussels. Consumer confidence dropped to minus 14 from minus 13, a seven-month low.
``We have no choice but to cut jobs,'' Burkhard Schuchmann, chief executive officer of Vossloh AG, a German train-equipment supplier, said in an interview. Vossloh, which employed 4,480 people at the end of 2004, plans to eliminate 180 jobs at its plant in the northern city of Kiel. ``It is a necessary adjustment in an environment that has become more volatile.''
Deutsche Bank, Germany's biggest lender, Deutsche Telekom AG, Europe's largest phone company, and Infineon Technologies AG, Europe's No. 2 chipmaker, are among companies reducing their workforce in Germany or moving jobs abroad.
`Deteriorating' Prospects
With oil prices 63 percent higher than a year ago, the European Commission may also lower its 2005 growth forecast on April 4, according to Ian Stewart, Merrill Lynch & Co.'s chief European economist. Merrill expects the commission to cut its prediction for euro region growth to 1.7 percent from 2 percent.
``Growth prospects for both the euro region and the French economy have been deteriorating over recent months because of the increase in oil prices and the euro,'' said Elwin de Groot, an economist at Fortis Bank Nederland NV in Amsterdam. ``That's affecting sentiment, at least among businesses.''
The ECB on March 3 lowered its 2005 growth estimate to 1.6 percent for the euro region, less than half the pace forecast for the U.S. by the Organization for Economic Cooperation and Development. The euro region has lagged behind the U.S. for 12 of the past 13 years.
Spreads Widen
Germany's 10-year note due in January 2015 climbed following the jobs reports, driving the yield down 0.02 percentage point to 3.64 percent at noon in Frankfurt.
The yield spread between the 10-year U.S. government note and 10-year German bunds reached 0.96 percentage point, its widest in almost five years, on March 22. The U.S. Federal Reserve has raised interest rates to curb growth and inflation. The ECB has maintained its rate at 2 percent since June 2003.
In Europe, ``the weakness in economic activity hinted at in these figures should ensure that rate hikes will not be forthcoming in the immediate future,'' said Rob Carnell, an economist at ING Financial Markets in London.
Germany's jobless registers have been swelled since the start of the year by a new law that brought 360,000 former welfare recipients on to the job market. Under the legislation, the unemployed face benefit cuts if they reject job offers. This month, the number of job seekers rose by 92,000.
At the same time, Schroeder's government cut taxes by 6.5 billion euros ($8.4 billion) from Jan. 1 to spur retail sales, which have fallen for three years amid job security concerns.
Seven weeks before elections in North Rhine-Westphalia, a region Schroeder's Social Democrats have ruled for four decades, support for the governing party is waning.
`Messy Transition'
Polling company Forsa, in a survey for Stern magazine and RTL television published yesterday, found nationwide support for the Social Democrats at a six-month low of 28 percent, 18 percentage points behind the opposition Christian Democratic Union, with 18 months to go before the next national election. The survey of 2,008 voters conducted March 21 to March 24 had a margin of error of 2.5 percentage points.
``The labor market is locked into a messy transition; it's Schroeder's biggest nightmare,'' said Uwe Andersen, a politics professor at the University of Bochum, in an interview. ``Voters are losing faith with the government in a big way.''
In France, the number of unemployed rose by 4,000 to 2.76 million from January, using International Labor Organization methods, the Labor Ministry said in Paris. The jobless rate remained at 10.1 percent, the highest since January 2000.
`Bad Figures'
``These are bad figures,'' said Boone. ``Unemployment is rising, wages are not increasing, why should consumers spend money?''
The French economy will create 41,000 jobs in the first half, barely enough to absorb the increase in the labor force, government statistics office Insee said March 24. The unemployment rate will fall to 9.9 percent in June, Insee forecast. Prime Minister Jean-Pierre Raffarin pledged in December to trim the rate to less than 9 percent this year.
Skis Rossignol, which agreed last week to be bought by Quiksilver Inc., said March 22 it's cutting 134 jobs and moving some production to a modernized factory in Spain.
Nestle, the world's biggest bottled-water company, said yesterday staff at plants in the French Alps cleared a plan to eliminate 480 jobs, allowing cost cuts to begin even as unions at the company's Perrier unit resist them. Nestle Waters' plan to cut about a quarter of its 4,142 jobs was delayed this month when a French court ruled the proposals should be re-submitted.
Alstom SA is among French companies that have been forced to eliminate jobs to help shore up earnings. The world's second- largest trainmaker based in Paris said Feb. 16 that it will shed about 200 jobs in France and 100 in Germany, bringing total reductions since January 2003 to 10,400.
``Growth was good last year but only few jobs were created, and now that growth is weaker there will be even fewer,'' said Marc Touati, chief economist at Natexis Banques Populaires SA. ``Growth remains difficult because there are not enough jobs.''
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