German jobless total still rising

Germany's short-lived economic recovery appears to be faltering. A flurry of unexpectedly depressing data was compounded yesterday by the latest jobless figures, which showed that seasonally adjusted unemployment in October had crashed through the 4 million barrier for the first time since the war.

The jobless rate across the nation now stands at 10.6 per cent - a 0.2 per cent rise on the previous month. As in the bleak winter months last year, unemployment is rising steadily in both east and west Germany.

The figures are particularly disappointing because they correspond to a period of relatively strong economic activity. Germany emerged from its mini-recession in the second quarter, and until recently most economists had forecast a sustained recovery well into 1997.

Last week, the six leading economics institutes said they agreed with the government's prediction of a growth rate of around 1 per cent this year, and 2.5 per cent in 1997. However, the latest industrial output figures showed a dip instead of the forecast rise, and the Federation of German Chambers of Commerce revised its growth forecast to between 1.5 and 2 per cent.

Attaining the government target, especially on the budget deficit, is crucial in the battle to meet the Maastricht convergence criteria for European monetary union. Even at the officially forecast growth rate, Germany was on course to miss the budget deficit requirements. The shortfall stems largely from the growing burden of unemployment benefits which, on current trends, will only become heavier.

Today, the government is expected to reveal a tax shortfall of between DM2bn and DM3bn. The Finance Minister, Theo Waigel, threatens to fill the gap by cutting welfare spending. The ruling coalition of Christian Democrats and Free Democrats is already bitterly divided over the issue, with the Free Democrats in effect vetoing any rise in taxes. The alternative is to cut government department spending.