German labour market weakening takes a pause in June

ING Global Economics Team ING Economic and Financial Analysis

The June drop in unemployment is a welcome positive surprise, but is unlikely to set a new trend.

German unemployment dropped by 1,000 in June, marking the best June performance for the labour market since 2021. It looks as if the gradual worsening of the labour market has paused. The seasonally adjusted unemployment rate remained unchanged at 6.3%.

A pause, not a reversal

Over the last four years, German unemployment has risen by some 500,000. This gradual worsening reflects textbook economics; with the economy effectively stagnating for more than five years and industry facing severe structural challenges, a deterioration in the labour market was inevitable. At the same time, employment has started to gradually drop since last summer and is down by some 200,000 people, providing additional evidence of a structurally changing labour market: a shrinking working force due to demographics, sectoral and geographical shifts as a result of the industrial transition and the influence of AI raising entrance barriers for graduates. Today’s numbers have only paused this trend, not ended it.

Looking ahead, the gradual worsening of the German labour market should gain traction again. After last night, many German soccer pundits expect an increase by at least one – the position of Germany’s national team coach. On a more serious note, the number of vacancies has fallen further, and employment plans in services have also come down. The temporary minor improvement in manufacturing employment plans will not offset these negative trends. On the contrary, previous and potential additional announcements of cost-cutting measures across the automotive industry, among others, as well as the continuing increase in bankruptcies, suggest that conditions will first worsen before they improve. AI disruption in the labour market could add to this.

All in all, today's labour market report provides some positive news. Still, it looks as if the recent downward trend has been paused, rather than ended or reversed.

Read the original analysis here

Author

ING Global Economics Team

ING Economic and Financial Analysis

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