Germany's unemployment rate, once boasting the eurozone's (20 countries using the euro) strongest job market on the back of a powerful manufacturing base, is soaring.
According to the Financial Times (FT) on the 18th (local time), the number of unemployed in Germany last month exceeded 3 million on a seasonally adjusted basis. It is the first time in 15 years that the number of unemployed in Germany has topped 3 million.
While the overall eurozone unemployment rate fell to a record low of 6.1% early this year, Germany has seen the number of unemployed increase in 42 of the past 48 months. Germany's job market is moving in the opposite direction from other eurozone countries.
Holger Schäfer, a labor market expert at the German Economic Institute (IW), said, "The 'golden decade,' marked by strong job creation and falling unemployment, is over."
Germany was once called the "land of jobs," with an exceptionally high employment rate even within the eurozone. As key industries such as automobiles and machinery grew rapidly on the back of an export boom, workers from other European Union (EU) countries flocked to Germany in search of jobs.
But a recession that has built up over several years has begun to hurt the labor market. Germany's gross domestic product (GDP) contracted for two straight years in 2023 and 2024, and last year's growth rate was only 0.2%. Due to the fallout from the Iran war, this year's growth outlook is also expected to remain around 0.5%.
Moreover, the core industries that have supported Germany's economy for decades are wavering. German automobile, engineering and chemical corporations have been cutting staff for years because of high energy expense and labor costs, and competition from Chinese rivals. On top of that, tariff impositions by the U.S. administration of Donald Trump have further weakened demand for German-made products in key markets such as the United States.
Germany's leading corporations are moving to restructure. Automaker Volkswagen plans to cut 50,000 jobs in Germany by 2030. The German Association of the Automotive Industry projects that a total of 225,000 jobs will disappear by 2035. German electronics corporation Bosch is also pushing to cut more than 20,000 positions.
German corporations, constrained by strong labor laws, are opting for indirect reductions such as voluntary retirement, hiring freezes and early retirement inducements instead of mass layoffs. As a result, new hiring has effectively stopped. Bernd Fitzenberger, director of the Institute for Employment Research (IAB), said, "Hiring is effectively on hold," adding, "The likelihood of finding a new job has plunged to pandemic-era levels."
The German government is trying to stimulate the economy by expanding infrastructure and defense expenditure, but the outlook is not bright. Rising unemployment is increasing the burden of social security expenditure, intensifying pressure across the German economy. Germany's social security expenditure as a share of GDP is reportedly at a record high, excluding the COVID-19 pandemic period.
Carsten Brzeski, global head of macro at ING, said, "The delayed impact of the economic downturn is now being fully reflected in the labor market," and predicted, "The number of unemployed could increase by as many as 300,000 this year."