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Manufacturing weakness dents Germany’s labor market

BERLIN (Reuters) – German unemployment rose more than expected in December, according to figures released on Friday, adding to signs that weakness in the manufacturing sector is hurting the labor market in Europe’s biggest economy.

Data from the Federal Labor Office showed the number of people out of work rose by 8,000 to 2.279 million in seasonally adjusted terms. That compared with the Reuters consensus forecast for a rise of 2,000.

A recession in the manufacturing sector prompted by slower exports has weakened Germany’s labor market, which has been the backbone of a consumption-led growth cycle. It has also resulted in weaker growth.

Friday’s data showed that the rise in unemployment was the highest since May. The jobless rate held steady at 5.0% – slightly above the record low of 4.9% reached earlier this year.

“The weak economic cycle is leaving visible marks (on the labor market)” said Labor Office head Detlef Scheele.

Combined with subdued inflation and rising government spending, the labor market should help Germany escape a recession this year despite a small rise in unemployment. The government forecasts a growth rate of 1.0% in 2020.

Separate data published on Friday showed that German inflation remained muted in December. EU-harmonised consumer prices rose by 1.5% year-on-year, which is bad news for the European Central Bank (ECB) but good news for German consumers.

The Statistics Office said that on average prices rose by 1.4% last year compared with 2018, keeping German inflation well below the ECB target level of close to but below 2%.

Economists expect unemployment to rise slightly this year. Yet a strong services sector should see more Germans entering the labor market.

“The employment trends should weaken but as long as it’s predictable 2020 should set a new employment record and real wages should rise,” said Martin Mueller of KfW bank.

He forecast the workforce would expand by 200,000 to 45.4 million and that unemployment would rise by 50,000, pushing the jobless rate up to 5.1%.

“This prognosis is valid barring serious setbacks for the economy,” added Mueller. “The risks for the economy are considerable. They include the trade conflict between the United States and China and the risk of a hard Brexit.”

(Writing by Joseph Nasr; Editing by Thomas Escritt and Giles Elgood)