EZA 767 Report:

10 November 2006

GERMANY

German labour market recovery undermines reform prospects The recovery in the German labour market seems to be genuine, as confirmed by current jobless numbers as well as business and economic forecasts. The labour market recovery can be seen as mainly cyclical, although labour market reforms enacted in 20003/5 enhanced the prospects for low-paid job creation. The recovery has had an adverse political impact making the CDU demand a lengthening of benefit entitlement, reversing previous labour market reforms. The council of economic advisors in its annual statement 08Nov overtly criticised the government’s failure to continue with labour market reforms, but the upswing of the jobs market undermines their chances to get demands for reforms heard.

Asset conclusions: labour market recovery good for consumption and growth prospects in the short and medium term; stalling reform bad for job creation in the longer run.

© Graham Bishop