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German joblessness rises as euro zone crisis bites

By Gareth Jones

BERLIN (Reuters) - German joblessness rose for a seventh month in a row in October, highlighting the vulnerability of Europe's biggest economy to the euro zone crisis.

Economists expect the trend to reverse, however, as growth revives in the new year.

The number of Germans out of a job rose to 2.937 million in October, up 20,000 from the previous month. The consensus forecast in a Reuters poll of 31 economists was for unemployment to rise by 10,000..

Joblessness, however, remains near its lowest level since German reunification more than two decades ago. Labour Office data released on Tuesday showed the unemployment rate steady at 6.9 percent, unchanged from a revised figure for September.

This stands in marked contrast to the chronic joblessness suffered by weaker members of the euro zone such as Spain, where one in every two young people is unemployed.

"The weaker economic situation is having a noticeable impact on the (German) labour market. However, the jobs market overall is proving robust and is in good shape," said Frank-Juergen Weise, head of the Labour Office.

The global slowdown and the euro zone's three-year debt crisis are weighing on companies' readiness to invest and recent surveys have shown business confidence in Europe's powerhouse economy sagging badly, though few economists expect a recession.

"Today's numbers provide further evidence that the labour market is gradually losing steam, indicating the cushioning impact on the economy should peter out in the coming months," said Carsten Brzeski of ING Bank.

"However, the lack of qualified employees and still strong labour demand in domestic sectors should make the current slowdown a very gentle one."

SLOWDOWN

Germany's economy powered through the first two years of the euro zone sovereign debt crisis, racking up growth of 3 percent in 2011, but has slowed steadily this year to 0.5 percent in the first quarter and 0.3 percent in the second.

Chancellor Angela Merkel's center-right coalition, which faces an election next year, expects the German economy to grow by only 0.8 percent overall this year and by 1 percent in 2013.

Economists noted that more companies, especially in the car industry, had reintroduced short-time working and this would have a negative impact on joblessness in the engineering sector.

Engineering association VDMA said German engineering orders rose 11 percent in real terms in September from a year before but it attributed the strong figure to one-off big ticket items from abroad and said domestic orders fell 1 percent in the less volatile three-month comparison.

In other signs of weakness, sports apparel maker Puma said recently it was looking at more cost-cutting measures after third-quarter results came in below expectations, hit by the slowdown in Europe.

German industrial conglomerate Siemens aims to slash production costs and could cut jobs as business this year proves tougher than expected.

However, economists said the recent calming of investor sentiment over the euro zone crisis should start to have a positive impact on Germany's economic performance.

Euro zone economic sentiment fell less than expected in October, data from Brussels showed on Tuesday [ID:nL5E8LU611].

"In the coming months, labour market data will probably be rather weak. Things can only improve once the relative calm currently experienced by financial markets is transferred to the real economy," said Christian Schulz of Berenberg Bank.

"That will probably be at the start of next year, when the economy is growing again. That will then have a delayed effect on the labour market," he added.

(Additional reporting by Madeline Chambers, Writing by Gareth Jones, editing by Jeremy Gaunt)

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