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Last Updated: Tuesday, 31 January 2006, 12:50 GMT
Caution over German jobless rise
Man walking alongside frozen river in Berlin
The cold weather has deterred some firms from hiring
German unemployment has unexpectedly risen above the five million mark again but experts have said the latest figures must be treated with caution.

The headline jobless rate rose 408,000 to 5.012 million in January, according to official figures, equivalent to 12.1% of the working age population.

However, analysts said the data was skewed by the unusually cold winter and forthcoming changes to benefit rules.

Government officials said the long-term unemployment trend was falling.

Seasonal lay-offs

In other troubling news for the German economy, data also released on Tuesday showed a 1.4% fall in retail sales in December.

The figures reinforced recent concerns that Germany's fledgling economic recovery could be held back by weak domestic demand.

This does not change the fundamental downward trend in unemployment
Frank Weise, Federal Labour Agency

The headline rise in unemployment came as a surprise with most commentators expecting a modest rise.

However, experts said the figures should not be taken at face value because of important seasonal factors.

Bitterly cold weather has led many firms, particularly in the building trade, to lay off more staff than usual.

In addition, up to 30,000 people registered as unemployed this month ahead of the introduction of new benefit rules.

German department store
German retail spending was weak in December

Seasonally adjusted figures released by the Bundesbank showed a smaller rise in jobless figures to 4.699 million.

"This does not change the fundamental downward trend in unemployment," said Frank Weise, chief executive of the Federal Labor Agency.

Before January, German unemployment had been gradually falling since hitting a post-war high of 5.2 million in February 2005.

'No miracle'

Economists said the data did not reflect the impact an improved export climate and rising business confidence were having on job creation.

"Contrary to the aborted recoveries of 2002 and 2004, the leading indicators point to positive jobs opportunities on both sides of the labour market," Sylvain Broyer, from banking group IXIS, told Reuters.

However, there are concerns that hoped-for reforms to the labour market are unlikely to happen quickly because of potential splits in Angela Merkel's coalition government.

"It is not a jobless recovery, that message is clear," said Andreas Rees, an economist with HVB Group.

"However, a German job miracle is definitely not in the offing."

Separately, France reported a drop in unemployment in December from 9.6% to 9.5% and a rise in consumer confidence last month.

The health of the German and French economies will help determine the eurozone's economic performance this year.

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