German unemployment has fallen below four million, but there is little sign that rising business confidence is encouraging firms to take on more employees.
Figures released yesterday by the federal labour office showed the number out of work in September fell to 3.943 million from 4.024 million in August, an unemployment rate of 10.1 per cent.
The labour office president, Mr Bernhard Jagoda, did not expect the level to change much in October and predicted the average figure for this year would be 4.1 million. "We are still waiting for an economic improvement in the labour market," he said.
The figures were interpreted by analysts as making an interest rate increase by the European Central Bank less likely at tomorrow's council meeting.
Opposition politicians seized on the figures as evidence that Mr Gerhard Schroder's centre-left coalition has presided over "12 months of standstill in the labour market".
The government identified cutting unemployment as its chief economic objective when it entered office a year ago, but the latest figures are almost identical to those of September 1998.
One reason for the lack of movement in the figures is the loss of 70,000 training and work experience places created by the previous government in the months preceding last year's election. Economic growth has been slower than expected in 1999, but economic analysts suggested yesterday that Mr Schroder's government must accept a share of the blame for the continuing high level of unemployment.
"The government could not do anything about the bad economic weather, but it did not react appropriately. Economic and budgetary policy has been too ambitious and too greatly dominated by budgetary consolidation," said Dr Wolfgang Scheremet of the German Institute of Economic Research in Berlin.
Since Mr Oskar Lafontaine's resignation as finance minister in March, German economic policy has shifted away from an emphasis on promoting growth to an ambitious plan to eliminate the budget deficit by 2006.
The present minister, Mr Hans Eichel, indicated yesterday that his proposal to cut public spending by 30 billion deutschmarks (€15.33 million) next year was just the start of a process of budgetary consolidation.
Recent cutbacks in job creation schemes have hit the east of the country hardest, pushing up unemployment in the region by 15,000 last month. Mr Jagoda acknowledged that the improved economic climate was more likely to benefit the west and he declined to back predictions that unemployment throughout Germany would fall by 300,000 next year.
"That is possible, but I have no figures for it. But I'd be the happiest man in Germany if I could confirm that for you next year," he said.
The data was interpreted as indicating that, with the economic recovery still in its early stages, the ECB may hold off raising rates for the moment. Most economists expect the ECB to maintain its current interest rates at a meeting tomorrow.
But a handful of analysts are beginning to think that, with the economic recovery in the 11-nation euro zone gathering momentum, a rate increase might occur soon as a pre-emptive strike against inflation.
Until recently, most central bank watchers had not expected the ECB to tighten monetary conditions in the single currency area until next year at the earliest. Now many economists predict that a rise in rates might come this month or next month, although most believe it will not be announced as early as this week's meeting.
"The pick-up in growth means the ECB can soon afford to reverse the April rate cut, and the shift in ECB rhetoric in recent days suggests that an early tightening is likely, probably in October or November," wrote Salomon Smith-Barney economist Michael Saunders in a research note.
