German unemployment rises but economy seen powering ahead

A trader is pictured outside the Frankfurt stock exchange, July 16, 2009. REUTERS/Johannes Eisele

BERLIN (Reuters) - German unemployment unexpectedly rose in July and posted its biggest increase since May last year, but the labour market blip is unlikely to derail the domestic demand that is driving growth in Europe’s largest economy.

The Federal Labour Office reported on Thursday that the seasonally adjusted unemployment total rose by 9,000 to 2.799 million. A Reuters poll of economists had pointed to a fall of 5,000.

The jobless rate remained at 6.4 percent for the fourth straight month. That is the lowest since German reunification in 1990.

“Despite the small increase in non-seasonally adjusted terms, this labour market report is impressive,” said ING economist Carsten Brzeski.

“The German labour market has become solid as a rock and looks almost fully immune against any short-term volatility.”

German households remain upbeat. Morale among German consumers steadied going into August, with higher income expectations offset by concerns that a deal to keep Greece in the euro zone will weigh on Germany’s economy.

In another positive sign from the German economy, business confidence improved in July as the agreement between Greece and its creditors for talks on a third bailout lifted the mood at firms in Europe’s largest economy.

Reflecting the upbeat corporate mood, German trains-to-turbines group Siemens SIEGn.DE beat expectations for its third-quarter results and stuck to its full-year outlook on Thursday despite weakness in China.

German economic growth weakened to 0.3 percent at the start of this year and the finance ministry said last week that the economy would probably expand by around the same amount between April and June, with domestic demand propelling growth while foreign trade picks up.

Writing by Paul Carrel; Editing by Caroline Copley and Madeline Chambers