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Business

German Unemployment Falls in June, Surprising Forecasters

German unemployment fell more than forecast to a 16-year-low in June, the nation's labour agency said Tuesday, adding to signs that Europe's biggest economy is withstanding softer world economic growth.

Picture of employment office

Fewer people are queueing for jobless benefits in Germany

The country's jobless rate slipped slightly, to 7.8 percent from May's 7.9 percent, as employers continued to hire on the back of the nation's solid economic performance.

The Nuremberg-based labor agency said the numbers of those out of work in Germany dropped by 38,000 to 3.27 million in seasonally adjusted terms.

Economists had predicted a decline of 15,000 with the drop in June coming in the wake of a surprise increase in May. Between December and May, German unemployment recorded an average monthly drop of 46,000.

The release of the latest German unemployment data follows figures also published Tuesday showing a bigger-than-expected pickup in retail sales in the nation helped along by higher pay settlements and the improvement in the labor market.

Retail sales rose a real 1.3 percent in May, the statistics office said, increasing by 0.7 percent on the year as German consumers apparently also shrugged off the threat posed by surging inflation.

Economists had predicted a monthly rise of 0.5 percent with a 1 percent fall for the year.

A positive revision to growth projections

Indeed, despite key forward-looking sentiment surveys pointing to a darkening economic mood in the country and inflation climbing to record levels, economists have revised up their previous 2008 German growth projections.

Containers unloaded at the wharf

A positive export outlook is buoying the economy for now

In particular, this follows strong demand from the world's leading emerging economic nations in Asia, Eastern Europe and the Middle East, Germany's still-positive export outlook has helped to result in the positive revision.

Instead of a previously projected 1.9 percent, Germany's central bank the Bundesbank now expects the country to clock up a 2.25 percent growth rate this year. The German economy grew by 2.5 percent in 2007.

The Berlin-based German Institute for Economic Research (DIW) said Tuesday it now expects the nation's 2008 growth rate to hit 2.7 percent after a strong start to the year.

The latest labor agency data also showed the number of job vacancies had climbed from 579,180 in May to 596,269 in June.

The best times are now behind

Economists, however, are predicting that German growth is likely to lose ground in the run-up to the end of the year, with the nation's expansion rate tipped to slow closer to 1 percent in 2009 and consequently undercutting hiring.

"The numbers out of work (in June) have been a positive surprise," said Eckart Tuchfeld, economist with Commerzbank AG. "Nevertheless, at least for the medium term the best times are now behind the labor market."

Based on the more politically sensitive seasonally unadjusted terms, Tuesday's figures showed German unemployment falling in June, with the numbers out of work dropping by 123,000 to 3.16 million.

This brought the seasonally unadjusted jobless rate down to 7.5 percent.

The jobless numbers in June were 528,000 fewer than in the same month last year, when the unemployment rate stood at 8.8 percent.

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