Germany’s job market best since reunification

Germany's employment market hit a post-reunification high in 2022, new data from the country's official statistics agency has shown, but there are fears that the strength of the labor market could force up wages, putting more pressure on interest rates.

The country has such a position of economic significance within the 20-member eurozone that its health and performance have a major impact on the other members, so should wages in Germany be pushed up, the economic ripples would be felt across the continent.

Figures published by the Destatis agency show that last year, around 45.6 million people in Germany were in employment, up almost 600,000 on the previous year, and the highest figure since the former East Germany and West Germany were reunited in 1990. The unemployment rate of 2.8 percent was also the lowest total recorded since reunification.

In October, the country's Economy Minister Robert Habeck admitted that Germany would head into recession in 2023, with shrinkage of 0.4 percent expected, rather than the growth of 2.5 percent that had been predicted previously.

Preemptive measures

Growth forecasts for 2022 were also rounded down from 2.2 percent to 1.4 percent, but the DW news service quoted Habeck as saying that the situation showed that the government's preemptive measures to preserve the economy had saved the country from an even worse outcome, and Munich University's Ifo Institute for Economic Research said in December that the recession would be milder than expected.

"In the two quarters of the winter half-year 2022/23, the gross domestic product shrinks, but then it goes up again," the institute's head of forecasts, Timo Wollmershaeuser, told Reuters.

Across the eurozone as a whole, unemployment has remained low, at 6.5 percent in October, the latest month for which figures are available, and Bert Colijn, a senior economist at financial services organization ING, told the Financial Times that "modest upward pressure on wages is set to stay".

The European Central Bank, or ECB, which is scheduled to meet again on Feb 2, pays close attention to the labor market across Europe as an economic barometer, and in December, ECB President Christine Lagarde acknowledged that wage growth was "strengthening", which is likely to extend the period of high inflation.

Despite a slight fall in November, currently the eurozone inflation rate is around 10 percent, compared to the ECB's 2 percent target.

In a recent interview with Croatian newspaper Jutarnji list to coincide with the country becoming the newest member of the eurozone, Lagarde said the ECB has to "take the necessary measures" to bring inflation back under control, making it more likely that an already anticipated interest rate rise will be approved at February's meeting.