German Unemployment Hits Five-year High

German unemployment rose by 67,000 to 4.7 million in February, reaching its highest level for five years, official figures showed today.

The February statistics easily exceeded forecasts of a rise of between 20,000 and 45,000, and underlined Germany's status as the sick man of Europe.

"The labour market cannot recover while the economy stagnates," said Florian Gerster, the president of the federal labour office. Mr Gerster added that unusually bad weather had contributed to the February rise.

Daniela Etschberger, of German bank Dresdner Kleinwort Wasserstein, said that the number was much higher than the 40,000 rise that had been anticipated by the bank.

"The jobless data will increase the pressure on the government to initiate reforms: that's possibly the only positive thing to come out of this," she said.

"Economic conditions are so weak that it is unlikely firms will start taking on more staff, so there's no improvement in sight. I think joblessness will continue to rise in coming months."

The latest unemployment figures, creeping towards the 5 million mark, will put further pressure on the German chancellor, Gerhard Schröder, who is due to deliver a key speech on economic reforms to parliament next week.

Germany is facing its worst economic crisis in a decade, hampered by sluggish growth ever since the reunification boom of 1990 and 1991. The economy has grown by more than 2% in only two years since 1992. In 2001, it expanded by 0.7%, while last year it grew by 0.2%.

There are fears that Germany could sink into recession this year, with consumers reluctant to spend and weak global growth holding back exports.

Piling on the humiliation for what was once Europe's economic powerhouse, Germany is once again likely to breach the 3% limit for budget deficits laid out in the EU's stability and growth pact.

The higher than expected February unemployment figures reflect a spate of recent layoffs. German shipbuilder HDW said that a dramatic decline in business conditions meant it would cut its payroll by around 750 to 2,650.

Germany's second-largest bank, HVB Group, plans to axe another 1,000 jobs to help it push through a large-scale cost-cutting strategy aimed at avoiding a second year in the red.

The construction sector has been particularly badly hit. Construction investment is likely to fall by 2.5% in 2003, leading to the loss of 50,000 jobs, the ZDB construction industry association said last month.