German jobless threatens Schroeder

Schroeder: Abandoned election pledge to cut unemployment to below 4 million

BERLIN, Germany -- The number of people out of work in Germany rose more than expected last month as Europe's largest economy continued to stumble out of recession.

Unemployment rose by 39,000 to 4.092 million in June, on a seasonally adjusted basis, up from 4.052 million in the previous month, according to government data released on Tuesday.

Economists surveyed by Reuters had predicted that adjusted unemployment would rise by 28,000 in June.

On unadjusted basis, the number of jobless rose by 8,000 to 3.954 million, which also took many by surprise. Unemployment usually falls in June as employers hire more staff to meet an expected increase in business during warming months.

"These are really disappointing numbers. Looking at the rise in unadjusted numbers, one can see how the adjusted numbers could have been even worse," Rainer Guntermann, an economist at Dresdner Kleinwort Wasserstein, told Reuters.

"The usual seasonal labour market pickup didn't happen this year and this shows firms' uncertainty about growth."

The higher-than-expected jobless numbers come less than 100 days before a national election in which unemployment has been the biggest single issue.

In particular, the figures are a blow to Chancellor Gerhard Schroeder, who came to office with a pledge to bring the jobless number below four million. He withdrew that promise in the run-up to the current election, which will be held in September, as the economy was plunged into an economic downturn.

"This steps up the pressure not only on Chancellor Schroeder but also makes labour market reforms more urgent," Guntermann said, adding that it also puts more pressure on the European Central Bank to hold off raising interest rates.

"These numbers again confirm that the ECB can wait longer with a rate rise as this weak outlook for jobs shows the prospects for private consumption also remain weak, so there is not going to be much pressure on prices from the demand side," he said.

The rate of inflation in the eurozone has dipped below the ECB's target ceiling of 2 percent, as oil prices eased and the euro gained strength against the U.S. dollar, making imports less expensive.

But the German economy remains weak, with gross national product rising by just 0.2 percent in the first quarter of this year after contracting during the second half of 2001.

Consumer and business confidence have also been falling in recent months, as the economy struggles to recover.

The pessimistic outlook for the economy has been aggravated by layoffs and corporate failures.

On Monday, the 111-year-old engineering group Babcock Borsig said it had abandoned attempts to save the company after filing for insolvency.

Babcock's insolvency follows the failures this year of construction giant Philipp Holzmann, the Kirch media group, stationery company Herlitz and aircraft manufacturer Fairchild Dornier.