German unemployment has risen to its highest level in almost a decade

Germany’s economic weakness is finally taking its toll on the labor market, with the number of unemployed expected to rise to the highest level in almost a decade, according to a study by the German Economic Institute (IW).

The survey, seen by Reuters ahead of its publication on Friday, shows that unemployment will rise to an average of just under 2.8 million people this year, the highest level since 2015. However, that figure is well below the peak of 2005, when almost 4.9 million people were unemployed and Germany was considered the ‘sick man of Europe’.

“Last year the labor market was quite stable, despite the recession,” said IW labor market expert Holger Schaefer. “But this year we are feeling the consequences of the economic crisis more strongly.” Companies’ employment plans do not indicate any growth for the rest of the year, Schaefer said. “The number of newly registered vacancies fell to the lowest level in five years in March,” he said.

According to IW, German unemployment is expected to rise to 6% this year. Other leading German economic institutes expect the unemployment rate to reach 5.8% this year and fall to 5.5% next year. In their spring report for the German government, they predict just under 2.7 million unemployed for 2024.

RESILIENT LABOR MARKET The German economy will shrink by 0.3% in 2023. Despite the recession, the number of employed people increased by 340,000, or 0.7%.

IW experts attribute this increase in employment to labor hoarding, as companies tend to retain skilled workers even if they do not have enough work for them, fearing future labor shortages due to demographic changes. However, companies can usually only do this for a short period of time.

“As the period of weakness continues, it becomes increasingly likely that workforce adjustments will need to be made as permanent productivity declines will undermine companies’ competitiveness,” Schaefer said.

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