/www.bloomberg.com/ Berlin, March 6 (Bloomberg) -- German unemployment rose to the highest in almost five years in February as the economy stagnated and the threat of war in Iraq paralyzed investment.
The number of jobseekers climbed by a seasonally adjusted 67,000 from January to 4.36 million, the Federal Labor Office said. Economists expected an increase of 30,000. The jobless rate rose to 10.5 percent from 10.3 percent, the Bundesbank said.
``The economy is in a dismal state,'' said Hans Erwin Bauer, chief executive officer at HeidelbergCement AG, Germany's largest cement company. ``We've dismissed workers and closed factories year after year. An end to this recession is not in sight.''
Rising unemployment and preparations for an attack on Iraq pushed German consumer confidence to an eight-year low this month. The economy of the dozen nations sharing the euro may contract this quarter, the European Union said. Analysts predict the European Central Bank will lower interest rates today.
As exports and consumer spending show no signs of recovery, companies including printing press maker MAN Roland AG and building material maker Pfleiderer AG are shedding jobs.
MAN Roland, which employs 8,000 people in Germany, said it is in talks with worker representatives to negotiate job cuts. Pfleiderer, which provides work for about 6,230 people and does half its business in Germany, said it will cut an unspecified number of jobs this year ``as a precautionary measure.''
Car Sales Decline
The threat of war is hurting sales at luxury carmaker Porsche AG and Escada AG, Germany's No.2 clothing company. Porsche's North American vehicle sales slumped 37 percent last month and Escada said customers are holding back as troops gather in the Middle East.
Futures trading suggests ECB policy makers will cut rates to prevent the region's economy from shrinking. The rate on a three- month euro deposit maturing in June was little changed at 2.29 percent at 11:56 a.m. in Frankfurt. A week before, it was 2.32 percent.
Germany's benchmark DAX Index is down almost 14 percent this year and shed 44 percent in 2002, the biggest drop among the world's benchmark indexes tracked by Bloomberg. The index gained 0.4 percent to 2507.66 at 12:01 p.m. Frankfurt time.
Signs of a rebound in consumer spending may be short-lived, economists said. Retail sales, which rose for the first time in three months in January, are ``likely to weaken again'' in February and March, said Jacques Cailloux, an economist at Barclays Capital in London.
`Zero Growth'
Chancellor Gerhard Schroeder is under pressure to boost growth after his Social Democratic Party scored its worst results since 1945 in two regional elections last month. Today's report showed joblessness is the highest since April 1998, six months before he first won power.
Failure to overhaul labor market restrictions and the welfare system will lead to ``zero growth, more insolvencies and increases in the unemployment rate,'' said Dieter Hundt, president of the BDA association of employers.
``The acceleration in the increase of unemployment was mainly caused by weak economic growth,'' said Joerg Kraemer, chief economist at Invesco Asset Management in Frankfurt. ``Even if Chancellor Schroeder were to suggest real labor market reforms, this is unlikely to reverse the strong upward trend in the course of this year.''
The government has failed to win labor union support for a plan to make layoffs easier for small companies. Schroeder said he'll push ahead with the plans even after three-way talks with unions and employers collapsed Monday.
Forecasts Lowered
A European Union rule designed to protect the euro has forced the government to choose between cutting spending and raising revenue. Finance Minister Hans Eichel plans to eliminate tax breaks for companies and consumers, a move executives say may deter investment and hiring.
``The situation on the labor market will improve in the second half, but more toward the end of the year,'' Florian Gerster, president of Germany's Federal Labor Office, told a press conference.
The government last month pared its forecast for economic growth this year to 1 percent, after the slowest pace of expansion in nine years in 2002. Bert Ruerup, a member of the government's ``Five Wise Men'' council of economic advisers, said he doesn't see how this forecast ``can be realized.''
The jobless rate, adjusted for EU standards, rose to 8.7 percent from 8.6 percent, above the average of 8.6 percent in the dozen countries sharing the euro in January. The U.S. jobless rate may rise to 5.8 percent in February, economists predicted ahead of a government report Friday. Japan's January jobless rate was 5.5 percent.
Interest Rates
ECB policy makers today will probably lower the benchmark refinancing rate by at least a quarter point from a three-year low of 2.75 percent, nineteen of the 25 economists surveyed by Bloomberg News said.
The dozen-nation euro economy, which encompasses 300 million people from Lisbon to Helsinki, may contract this quarter, the European Union has said. European Central Bank President Wim Duisenberg last month abandoned his prediction for an economic recovery this year.
Concern about rising unemployment is also hurting French consumer confidence, which fell to the lowest in almost six years in February. Cap Gemini SA, Europe's largest computer-services company, posted a loss for last year and said it would cut more than 6,700 jobs.
The number of people out of work in western Germany, which accounts for 94 percent of national output, rose a seasonally adjusted 50,000, the Labor Office said. The number of people out of work in eastern Germany rose 17,000.
The number of people out of work, unadjusted for seasonal factors, rose to 4.71 million. In December, employment fell a seasonally adjusted 29,000, the Labor Office said.