February 2, 2016 / 10:28 AM / a year ago

German jobless rate falls to lowest level on record

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BERLIN (Reuters) - German unemployment fell more sharply than expected in January and the jobless rate dropped to a record low, suggesting private consumption will help offset a slowdown in emerging markets to keep growth in Europe's largest economy steady.

The number of people out of work fell by 20,000 on a seasonally adjusted basis to 2.732 million, the Federal Labour Office said on Tuesday. That compared with the Reuters consensus forecast for a drop of 7,000.

The seasonally adjusted jobless rate declined to 6.2 percent from 6.3 percent in December, hitting the lowest level since reunification in 1990.

"The thriving labor market remains the main driver for economic growth in Germany," said Joerg Zeuner, chief economist at KfW, a government-owned development bank.

"Expected increases in earnings and employment hold out the prospect of a robust development in consumption for 2016."

An employee of German car manufacturer Mercedes Benz observes the connection between the bodywork and the chassis of an A class (A-Klasse) model at their production line at the factory in Rastatt, Germany, January 22, 2016.Kai Pfaffenbach

Employment is at record high in Germany thanks to favorable economic conditions and an influx of foreign workers, the Federal Statistics office said last month.

Muted price pressures and rising wages have helped to boost domestic consumption at a time when slackening growth in emerging markets, particularly China, is dampening demand for German exports.

A survey on Monday showed growth at German factories eased to a three-month low in January as weaker demand from abroad weighed on new orders.

Firms took on more staff to deal with backlogs of work, according to the survey, though Zeuner said he expects unemployment to rise by around 100,000 people this year.

Many of the 1.1 million migrants who arrived in Germany last year will need to learn German and gain new qualifications before they can start work, he said, forecasting a rise in the jobless rate to 6.5 percent.

Reporting by Caroline Copley; Editing by Paul Carrel and John Stonestreet

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