German Unemployment Resumes Rise as Economy Battles Recession

(Bloomberg) --

German unemployment resumed its rise as factories remained in a slump, increasing the pressure on the government to step in with fiscal stimulus.

The number of jobless climbed by 6,000 in October, compared with estimates for an increase of 3,000. The unemployment rate held at 5%, near a record low. The report follows a survey this month showing manufacturing stuck in a slump and industry employment falling at the fastest pace in almost 10 years.

Germany probably slipped into a recession last quarter -- data are due on Nov. 14 -- and the government is under pressure from the International Monetary Fund and European Central Bank to bolster public spending. As the euro zone’s largest economy, the country is considered vital for the health of the currency bloc.

Read Bloomberg Economics’ analysis of the best euro-area surveys to watch

Manufacturers are being hit by uncertainty over global trade protectionism, and the auto sector is struggling with a fundamental shift to electric vehicles. While domestic consumption has so far held up, the fear is that the weakness will spread to the services sector as factories dismiss workers.

October’s gain in joblessness is rooted exclusively in rising claims for unemployment benefits on the back of weakening economic momentum, the labor agency said. Demand for workers receded and the number of vacancies declined.

Chancellor Angela Merkel’s administration has so far insisted that there’s no immediate case to deviate from its balanced budget, a stance backed by Bundesbank President Jens Weidmann. Still, there are nascent signs that some members of the political establishment are starting to reconsider their stance. ECB President Mario Draghi, who ends his term this week, says fiscal stimulus will allow the central bank to exit its unpopular negative interest-rate policy sooner.

--With assistance from Kristian Siedenburg and Harumi Ichikura.

To contact the reporters on this story: Paul Gordon in Frankfurt at pgordon6@bloomberg.net;Oliver Sachgau in Munich at osachgau@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow

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