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Germany braces for jobless surge as companies rush for state funds

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Via Financial Times

German officials expect unemployment in Europe’s largest economy to rise sharply as a consequence of the coronavirus crisis, even though hundreds of thousands of companies have applied for their staff to join a government-subsidised short-term work programme designed to avoid lay-offs.

Germany has sought to avert a big spike in unemployment through an expansion of the “Kurzarbeit” or short-time work scheme, under which companies hit by a downturn can send their workers home, or reduce their hours, and the state will replace a large part of the lost income.

Figures published on Tuesday showed that 470,000 companies had applied for funds under the scheme in the past few weeks — a record monthly increase. Last year, there were only 1,300 applications a month on average. 

Hubertus Heil, the country’s labour minister, said: “Unemployment in Germany will increase for the first time in many years . . . We have to be realistic . . . we can save a lot of jobs . . . but we can’t protect each and every one.”

He added that ultimately “many more” workers would draw Kurzarbeit wage subsidies from the state than the 1.4m people who received the funds at the height of the global financial crisis in May 2009.

But measures like Kurzarbeit are likely to mean Germany will be spared the sharp uptick in joblessness seen in the US. More than 3m Americans filed a claim for unemployment benefits last week, an all-time high, as city and state-imposed lockdowns forced thousands of businesses to shut up shop.

Detlef Scheele, head of the Federal Employment Agency, said the next set of unemployment statistics in April were likely to show an increase in joblessness of 150,000 to 200,000 people, adding that many of the lay-offs were in the hospitality and tourism sectors.

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“That shows you how abrupt this shutdown was, and how direct the consequences were for companies and workers,” he said. “We have never seen such an abrupt stop before.”

The employment agency said that by March 25, it had registered and checked applications from 55,000 companies for 1.04m of their staff to join the Kurzarbeit scheme. 

Temporarily laid-off workers receive “Kurzarbeitergeld” or “short-work money” from the Federal Employment Agency, which is also responsible for issuing unemployment benefits. The scheme promises them 60 per cent of their pre-crisis pay. 

Volkswagen, Daimler and Puma are among the large companies that have applied. One of the biggest applications came from Lufthansa, which asked for 31,000 of its cabin crew and ground staff to join the programme after grounding most of its 763 planes.

Germany’s unemployment rate is likely to rise briefly above 6 per cent this year, according to Katharina Utermöhl, senior economist at the German insurer Allianz. She said the monthly increase in jobless numbers was set to surpass the recent high of 80,000-90,000 people recorded during the 2008 financial crisis, although it would fall back again later this year.

“We expect a rebound in the second half, particularly in the retail and services sectors that will soak up a lot of the slack in the labour market quite quickly.”

The agency’s latest figures, published on Tuesday, showed a slight drop in the number of unemployed people in Germany, as the jobless rate dipped from 5.3 per cent to 5.1 per cent. But the data missed much of the impact of coronavirus as it only measured up to March 12. The number of people without a job fell by 60,000 between February and March to 2.34m.

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The latest German data came on the same day as separate figures showed that inflation fell sharply across the eurozone in March because of plummeting energy prices and a freeze on activity in many areas of the economy.

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Harmonised consumer price inflation across the 19 eurozone countries fell to 0.7 per cent in March, down from 1.2 per cent in February, according to a flash estimate from Eurostat. 

Energy prices fell 4.3 per cent, reflecting the dramatic drop in oil prices after Saudi Arabia started a price war with Russia. But unprocessed food prices rose 3.5 per cent as Europeans reacted to coronavirus by bulk-buying products including pasta, flour and rice.

The drop in eurozone price growth takes inflation further from the European Central Bank’s target of below but close to 2 per cent.

Morgan Stanley analysts said the data justified the ECB’s recent drastic easing of monetary policy, adding: “The data today reinforce that the dovish bias is well founded given the risk of deflation.”

Even before the coronavirus crisis brought much of the French economy to a standstill, consumer spending was already weak in Europe’s second-largest economy, figures published on Tuesday also showed, having fallen 0.1 per cent in February — its third consecutive monthly decline.

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