Germany braces for jobless surge as companies rush for state funds

German authorities expect unemployment in Europe’s largest economy to rise sharply as a result of the coronavirus crisis, even if hundreds of thousands of companies have asked their staff to join a work program government-subsidized short-term designed to avoid layoffs.

Germany has sought to avoid a sharp rise in unemployment through an expansion of the “Kurzarbeit” or short-time working scheme, under which companies affected by a slowdown can send their workers home or reduce their working hours, and the state will replace much of the lost income.

Figures released on Tuesday showed that 470,000 companies had requested funds as part of the program in recent weeks – a record monthly increase. Last year, there were on average only 1,300 requests per month.

Hubertus Heil, the country’s Minister of Labor, said: “Unemployment in Germany will increase for the first time in many years. . . Let’s be realistic . . . we can save a lot of jobs. . . but we cannot protect all of us. “

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

Detlef Scheele, head of the Federal Employment Agency, said the next round of unemployment statistics in April should show an increase in unemployment from 150,000 to 200,000 people, adding that many layoffs were in the employment sectors. hospitality and tourism.

“This shows you how brutal this stop was and how direct the consequences were for businesses and workers,” he said. “We have never seen such a brutal stop before.”

The employment agency said that by March 25 it had registered and verified the applications of 55,000 companies for 1.04 million of their employees to join the Kurzarbeit program.

Workers temporarily dismissed receive a “Kurzarbeitergeld” or “money for partial unemployment” from the Federal Employment Agency, which is also responsible for granting unemployment benefits. The program promises them 60% of their pre-crisis salary.

Volkswagen, Daimler and Puma are among the big companies that applied. One of the most important applications came from Lufthansa, which asked 31,000 cabin and ground crew members to join the program after immobilizing most of its 763 aircraft.

The unemployment rate in Germany is expected to rise slightly above 6% this year, according to Katharina Utermöhl, chief economist at the German insurer Allianz. She said the monthly increase in the number of unemployed was expected to exceed the recent peak of 80,000 to 90,000 people recorded during the 2008 financial crisis, although it would fall again later this year.

“We expect a rebound in the second half, particularly in the retail and service sectors, which will quickly absorb much of the labor market downturn.”

The latest agency figures, published Tuesday showed a slight drop in the number of unemployed in Germany, the unemployment rate having gone from 5.3% to 5.1%. But the data missed much of the impact of the coronavirus because it was only measured until March 12. The number of unemployed people fell by 60,000 between February and March to 2.34 million.

The latest German data arrived the same day as separate figures showed that inflation fell sharply in the euro area in March due to the fall in energy prices and the freezing of activity in many sectors economy.

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Harmonized consumer price inflation in the 19 euro-zone countries fell to 0.7% in March, from 1.2% in February, according to a quick estimate Eurostat.

Energy prices fell 4.3%, reflecting the dramatic drop in oil prices after Saudi Arabia started a price war with Russia. But prices for unprocessed food rose 3.5%, with Europeans responding to the coronavirus by purchasing bulk products, including pasta, flour and rice.

Falling price growth in the euro area moves inflation away from the European Central Bank’s target, which is less than almost 2%.

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

Even before the coronavirus crisis immobilized a large part of the French economy, consumer spending was already low in the second European economy, according to figures published on Tuesday, fallen 0.1 percent in February – its third consecutive monthly decline.

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