German joblessness rose for a fifth month running in August, the latest in a string of disappointing data that adds to evidence Europe's largest economy is feeling the effects of the euro zone crisis.
Unemployment still remains close to a post-reunification low, but the Federal Labour Office acknowledged that slowing growth was beginning to take its toll on what has been one of Europe's most resilient jobs markets.
Gross domestic product (GDP) growth slowed to 0.3 percent in the second quarter as companies, nervous about the debt crisis sweeping southern euro zone states, cut back on investments.
Many economists are expecting GDP to fall in the third quarter of the year, with Germany possibly even falling into a technical recession – defined as two consecutive quarters of contraction – in the latter half of 2012.
"The labour market is losing its momentum. That is not surprising given economic developments over the winter as unemployment is a lagging indicator. Currently the worsening sovereign debt crisis is adding to that," said Commerzbank economist Eckart Tuchtfeld.
The Labour Office said the seasonally-adjusted jobless total had risen by 9,000 in August, broadly in line with expectations, pushing the number of people out of work to 2.901 million, its highest level since November last year.
Data released in August showed imports, exports and industrial orders all shrinking, while business and investor sentiment surveys dropped and the country's private sector shrank for a fourth straight month.
Big German companies like Metro, the world's No.4 retailer, Lufthansa and Deutsche Bank are slashing thousands of jobs.
Others like Opel, the German unit of U.S. automaker General Motors, and steelmaker ThyssenKrupp, are returning to "Kurzarbeit", a government-subsidised short-time work scheme that was used widely by German industry during the global financial crisis in 2009.
Labour Office head Frank-Juergen Weise said slower economic growth was beginning to show through, with labour market indicators developing "increasingly weakly".
Rising jobless figures could become a headache for German Chancellor Angela Merkel, who faces an election next year, and may reduce the willingness of average Germans to continue to bail out southern euro partners like Greece.
Still, the vast majority of countries in Europe would be overjoyed to have a labour market like that of Germany.
In Greece and Spain roughly one in four people is unemployed. In Germany, the unemployment rate held steady at 6.8 percent in August, unchanged from July, and far below a June reading of 11.2 percent for the euro zone as a whole.
Combined with data on Wednesday which showed German inflation accelerated by 2.0 percent in August, the increase in the number of people out of work puts a dampener on expectations that domestic demand will boost the traditionally export-driven German economy as the euro zone crisis and a global slowdown hurt demand for its high-quality goods.
The strength of Germany's labour market, a product of structural reforms and years of wage restraint, has been fundamental in fuelling demand.
"Looking ahead, however, it is doubtful whether private consumption can really take over the baton as main growth driver for the German economy," said Carsten Brzeski, an economist at ING.
"Today's numbers provide further evidence that the labour market is gradually losing steam and that the positive impact on the economy should peter out towards the end of the year."
