More gloom for German jobs

Queues are growing at Germany's social security offices

In a further blow to Europe's slowing economy, the German labour office announced that unemployment rose in July for the seventh straight month.

German unemployment grew by 11,000 to 3.864 million on a seasonally adjusted basis, taking the jobless rate to 9.3% - way above the EU and eurozone averages.

European unemployment rates in June (%)

Spain: 12.8

Finland: 8.8

France: 8.5

Belgium: 6.8

Sweden: 4.9

Austria: 3.8

UK: 3.2

Netherlands: 2.4

Source: Eurostat

The news is a blow to Chancellor Gerhard Schroeder's ambition to cut the jobless total to 3.5 million by next autumn's elections.

And the dole queues are likely to get even longer before then.

Over the last few weeks, a flood of German companies - including industrial giants such as Siemens, Infineon and BASF - have announced drastic job cuts.

On Tuesday, the German government also revealed that industrial production in June fell by 0.4% on May's level.

Not all gloom

The employment figures were slightly better than some had feared.

Although a few sectors, notably energy, mining and construction, experienced sharp contraction in employment, the manufacturing sector remained steady.

Jagoda: Still confident about employment targets

Bernhard Jagoda, head of the labour office, said he was sticking to a forecast that unemployment would average 3.7 million in 2001, on an unadjusted basis.

But he admitted that reaching this goal would require a strong autumn upturn in the labour market.

He also indicated that the next round of wage talks, which in Germany are conducted on a large scale between unions and employers' groups, should allow for an above-inflation increase.

German wage negotiations are seen as a key indicator of future inflation in Europe, and are closely watched by monetary policymakers.

ECB calls

The unemployment figure will further increase pressure on the European Central Bank (ECB) to cut its interest rates.

The ECB is tipped to cut rates at its next meeting at the end of August, after having left them steady since May.

But the bank has long been reluctant to use monetary policy as a means to stimulate the European economy, preferring to target inflation instead.