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German unemployment eases

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BERLIN, Germany (Reuters) -- German unemployment fell more than expected in October as labor market reforms that encourage people to stop claiming benefits masked a continued drop in numbers in work, Federal Labour Office data showed on Thursday.

The Labour Office said the improvement did not signal a turnaround for employment in Europe's largest economy.

"The reversal in developments in unemployment since early summer does not signal a trend change on the labor market. For that employment must rise,'' Office head Florian Gerster said.

The Labour Office said unemployment adjusted for seasonal factors fell 12,000 to 4.380 million, more than double the 5,000 drop forecast by economists polled by Reuters.

In west Germany, unemployment fell 3,000, while in Germany's depressed east, the jobless total was down 9,000, although the national adjusted jobless rate was unchanged at 10.5 percent.

In unadjusted terms, pan-German unemployment fell by 55,100 to 4.152 million, lowering the jobless rate to 10.0 percent compared with 10.1 percent in September, the Labour Office said.

Labour market reforms enacted by Chancellor Gerhard Schroeder's government have put pressure on unemployed people to take training places or jobs or form their own companies with the help of subsidies, removing them from jobless rolls.

Analysts sounded a cautious note on whether the reforms would be enough to prevent the usual seasonal rise in jobless as winter arrives next month.

"Special circumstances, like the 'Ich AGs' (self employment scheme) and the higher demands on the unemployed, made the German labor market figures look more friendly than they actually were,'' said Andreas Rees of HVB Group in Munich.

"For 2004, we expect an increase in unemployment of approximately 100,000 to 4.5 million,'' he added.

But the decline will still be welcome news to Schroeder, whose Social Democrats are at a record low in opinion polls of 23 percent as the government is struggling to get unpopular welfare cutbacks through parliament.

Jobless recovery?

The fall comes amid signs that the German economy is experiencing a modest economic recovery after three years of stagnation. The DIW economic think-tank said on Wednesday the economy probably grew again in the third quarter after it contracted in the first half of the year.

The government expects growth of between 1.5 and two percent in 2004, but given high labor costs, that rate will still be too low to generate jobs on a large scale, analysts say.

Surveys suggest German companies are unlikely to take on significant numbers of additional staff soon, relying instead on gains in productivity to cope with accelerating demand as the recovery takes hold.

Some 35 percent of firms surveyed by the Cologne-based IW economic research institute recently said they plan to trim staff next year, even as 41 percent said they expect to step up production, the institute said on Wednesday.

"Our autumn survey gives scant hope for improvement in the labor market,'' IW Managing Director Rolf Kroker said at a news conference in Berlin. "The employment outlook in the construction industry is particularly bad.''

Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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