The number of unemployed people in Germany has hit a 12-year high, surpassing the 3 million mark, while inflation moved back above the European Central Bank's 2% target, clouding the outlook for Europe's largest economy after a stronger-than-expected end to 2025.
German Chancellor Friedrich Merz said on Friday that boosting the economy would be his main focus this year and promised to revive Europe's largest economy after two years of mild contraction with a sharp increase in infrastructure and defense spending.
While the economy as a whole is now showing greater resilience, Merz's measures are taking longer than expected to translate into better conditions on the ground, according to Reuters.
Labor Office figures on Friday highlighted the lag in the jobs market from the economic stagnation of the last few years, with 177,000 more people out of work in January than in December, bringing the total to 3.08 million.
The unemployment rate jumped by 0.4 percentage points to 6.6% in seasonally unadjusted terms.
“There is currently little momentum in the labor market,” said Labor Office director Andrea Nahles. “At the start of the year, unemployment rose markedly for seasonal reasons.”
The picture improved slightly when accounting for seasonal trends. On that basis, the Labor Office said, the number of people out of work was unchanged from December at 2.976 million and the seasonally adjusted jobless rate was steady at 6.3%.
Analysts and economists in a Reuters poll had predicted a seasonally adjusted rise of 4,000 in the jobless number.
On a brighter note, German gross domestic product grew by 0.3% in the fourth quarter compared with the previous three months, beating the consensus forecast of 0.2%. On an annual basis, the Statistics Office confirmed its first estimate of 0.2% growth.
Economy Minister Katherina Reiche said Germany must pivot toward new “growth engines,” arguing that traditional export strengths “no longer carry our growth.”
Europe's biggest economy lowered its growth forecasts for this and next year on Wednesday.
Annual inflation rose in January in five German states, preliminary data showed on Friday, suggesting the nationwide rate — due out later in the day - has also risen this month.
Price growth of 2.0% to 2.3% was recorded in North Rhine-Westphalia, Baden-Wuerttemberg, Bavaria, Saxony and Lower Saxony, and economists polled by Reuters forecast a harmonized national rate of 2.0% for January, unchanged from last month's rate.
Eurozone annual inflation, due out next Wednesday, is expected at 1.7% for January, down from 1.9% in December, according to economists polled by Reuters.
