Germany’s Labor Market Crosses Red Line With 3 Million Jobless

The number of unemployed people in Germany has topped three million for the first time in a decade, labour office figures showed on Friday, raising the stakes for the government’s huge investment plans to deliver quick results.

A total of 3.02 million people were unemployed in August in seasonally unadjusted terms, with an increase of 46,000 in the number of people out of work from the previous month.

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“In Germany, three million is not just a number. In the context of the labour market, it represents a symbolic threshold – one that separates strength from weakness,” said Carsten Brzeski, global head of macro at ING.

Adding to the gloom, inflation climbed more than expected in August to 2.1%, from 1.8% in July, preliminary data from the federal statistics office showed on Friday.

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Germany has been struggling with a persistently weak economy, and U.S. President Donald Trump’s import tariffs could lead to a third year without growth for the first time.

“The labour market is still shaped by the economic slump of recent years,” said labour office head Andrea Nahles.

The seasonally adjusted jobless rate remained stable at 6.3%, in line with analysts’ forecast in a Reuters poll.

But labour demand is slowing. There were 631,000 job openings in August, 68,000 fewer than a year ago.

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“The global economic uncertainties and Russia’s war of aggression against Ukraine are still leading to economic weakness,” Labour Minister Baerbel Bas said. “The cyclical headwinds continue to leave their mark on the labour market and require countermeasures.”

Bas said the government was providing a big investment boost for the economy, including a 500-billion euro ($585 billion) special fund for infrastructure, after loosening fiscal rules.

“The rise in unemployment is not unexpected. However, the figure illustrates how necessary reforms are for more growth and employability. The German government will focus on this,” Chancellor Friedrich Merz said.

Economists and business associations say it will take years for government spending to fully take effect, and extra measures are needed to address the deep-rooted structural problems in Europe’s biggest economy.

“Three million unemployed is a damning indictment of the refusal to reform in recent years,” said Rainer Dulger, president of the BDA employers’ association. “Germany needs a genuine ‘autumn of reforms.'”

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Many households are saving more because they are worried about the future and this will increase with bad news from the labour market, even if the rise in unemployment is not very large and no surprise, Ifo president Clemens Fuest said.

German retail sales fell much more than expected in July, separate data showed on Friday, clouding the outlook for consumption in the third quarter.

Retail sales fell 1.5% from June. Analysts polled by Reuters had predicted a 0.4% decrease.

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Some analysts had been hoping that, with U.S. tariffs cooling foreign demand, domestic consumers would pick up the slack.

“However, these hopes were disappointed in July,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

($1 = 0.8542 euros)

(Additional reporting by Rene Wagner, Emanuele Berro, Maria Rugamer and Simon Ferdinand Eibach. Editing by Aidan Lewis and Mark Potter)

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