BERLIN, Aug 6 - German unemployment adjusted for seasonal factors jumped by a higher-than-expected 7,000 in July, tempering recent optimism that Europe's largest economy is on the verge of a recovery. A source with knowledge of data due to be released by the Federal Labour Office at around 0800 GMT on Wednesday, said seasonally adjusted unemployment rose to 4.408 million in July, keeping the adjusted jobless rate steady at 10.6 percent. The July rise contrasted with analysts' expectations in a poll for a decline of 5,000 and follows a sharper-than-expected fall of 33,000 in June. The Labour Office believes the unemployment rise was kept relatively moderate because of recently introduced measures aimed at getting people back into work, rather than any improvement in the economy, the source said. The figures back economists' warnings that despite a recent improvement in German sentiment indicators suggesting a recovery is on the way, the fundamentals remain weak. Headline unadjusted unemployment rose by 94,500 to 4.352 million, bringing the unadjusted jobless rate up to 10.4 percent in July from 10.2 percent in June. Economists said last month's strong fall in unemployment was due to measures aimed at boosting temporary employment and encouraging workers to take low paid jobs. They said the widely expected upturn later this year and in 2004 would not be strong enough to halt rising unemployment. "I don't think the economy will grow by enough next year to keep jobless levels stable," said Andreas Rees, an economist at HVB Group. "If the upturn turns out to a flash in the pan, we could even see a jobless rise in the second half of 2004." Other legislation to encourage people to work include docking benefits of people who do not immediately register for job placement when they are made redundant, and summoning jobless people more often to job-placement meetings -- a move deterring many from claiming benefits in the first place.
JOBLESS SOURS SENTIMENT
The July jobless data dampens recent growing optimism that Germany is gradually emerging from three years of stagnation and coincides with a poll showing Germans are becoming increasingly pessimistic about the chances of an upturn. According to the poll published by Stern magazine on Wednesday, 42 percent of respondents believed the German economy would deteriorate this year, with only 30 percent expecting an improvement. A further 24 percent of the 2,508 people asked by the Forsa research institute from July 28 to August 1 believed there would be no change. The poll data contrasts with Germany's closely-watched Ifo index, the country's most important leading indicator, that has risen for the last three months in a row, usually a sign that an upturn is on the way. The GfK consumer sentiment indicator also improved, sparking hopes that private consumption was set to gather momentum. However, most of the country's economic think-tanks see zero growth in 2003, and some even expect the economy to shrink, putting pressure on the government to revise its forecast for 0.75 percent growth this year and 2.0 percent in 2004.