April 28, 2011 / 8:43 AM / 8 years ago

UPDATE 2-German jobless total falls to lowest since 1992

* Seasonally adjusted jobless total falls to 2.97 million * Adjusted rate at 7.1 percent, lowest post-unification

* Contrasts with subdued French, Italian data

* Spending picture subdued however by inflation -economists

(Adds economist quotes, background, details)

By Brian Rohan

BERLIN, April 28 (Reuters) - German unemployment fell more than expected in April to a near two-decade low, adding to signs of strength that contrasted with worsening data from other euro zone countries.

The seasonally adjusted figures from the Federal Labour Office showed the number of jobless fell by 37,000, bringing the total to 2.97 million, its lowest point since June 1992.

Germany’s strong recovery underpinned a first rise in euro zone interest rates earlier this month and another rise is expected by July, but there are signs of concern over the impact of higher rates on the countries struggling with high debt.

Other data on Thursday showed Italian business morale unexpectedly fell in April, prompting some economists to say economic activity may have peaked, while French consumer spending fell 0.7 percent. [ID:nLDE7171WU] [ID:nLDE73R0UR]

Still, analysts are hopeful the strong performance of Germany will drag others with it.

“Germany is driving the economy in Europe and other countries will benefit from that,” said Norbert Braems from Sal Oppenheim.

“(German) sentiment indicators are still high despite recent setbacks. The jobless data support this overall picture and bolster the economy in the medium term as they kick-start private consumption.”

The worry for European Central Bank policymakers is that a stronger labour market will prompt high pay awards, generating a second round of price rises to follow a jump in the cost of oil and commodities this year.

“As the unemployment rate has fallen below levels consistent with non-accelerating inflation, wage growth should pick up this year and next, which will probably push inflation in Germany above the average for the eurozone in the course of next year,” said Aline Schuiling from ABN AMRO.

Inflation in Germany accelerated to 2.4 percent in April, its fastest annual rate in 2-1/2 years, feeding speculation that the ECB could raise interest rates again this summer to wrestle down a European rate that hit 2.7 percent last month.

KICK-START

Supported by a buoyant manufacturing sector and domestic demand that has risen as unemployment has declined, Germany has recovered faster than expected from its deepest recession since World War Two.

Firms hired 39,000 more employees in March, according to separate employment data earlier on Thursday.

Berlin this month raised its growth forecast for 2011 to 2.6 percent, saying rising spending by consumers less worried about losing their jobs had marked a turning point and put economic expansion on a strong footing. [ID:nLDE73D1EA]

Signs are emerging however that the pace of growth may have peaked, and expansion will be less rapid in the months ahead.

Recent sentiment measures like Ifo’s business confidence index, the purchasing managers index (PMI) and ZEW’s investor sentiment index have all shown slight declines, consistent with a recent Reuters quarterly poll that sees growth decelerating starting in April after the ECB tightened lending rates.

Market research group GfK’s forward-looking consumer morale index contracted more than expected going into May, largely on expectations that rising consumer prices could wipe out rises in pay.

“Subdued (overall) wage growth and rising inflation suggest that real labour income growth will remain pretty weak,” said Ben May from Capital Economics.

“What’s more, with the fiscal squeeze only just starting, household spending growth will probably only expand at a fairly moderate pace.”

Additional reporting by Christiaan Hetzner, Kerstin Doerr, Eric Kelsey; editing by Patrick Graham

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