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German consumers upbeat but job market falters

FRANKFURT, Feb 26 – German consumers are bucking an EU trend as low inflation and an auto scrapping scheme boost spirits, data showed Thursday, but rising unemployment in Europe\’s biggest economy dampened the mood.

Consumer confidence as measured by the GfK research institute rose to an indexed 2.6 points, the second straight increase and the highest level since July.

That contrasted with a similar poll of the entire 16-nation eurozone, which fell to a record low this month.

The EU Commission\’s economic sentiment indicator dropped to 65.4 points, the worst result since the survey began in January 1985.

For the entire 27-nation EU, the plunge was even greater, and in both cases it was the third straight monthly fall.

In Germany, observers underscored a solid, but temporary, boost from a state car replacement incentive and inflation below 1.0 percent as key factors for the increase there.

A government scheme that gives consumers 2,500 euros (3,200 dollars) to turn in an old clunker for a new car that pollutes less has been well received.

The plan is part of a 50-billion-euro economic stimulus package approved by lawmakers to jumpstart the German economic engine, and "obviously lifted German consumer spirits," UniCredit economist Andreas Rees said.

Officials in charge of the auto incentive have already received more than 120,000 applications.
But the plan\’s effect could peter out in mid-2009, analysts say, especially if more and more Germans lose their jobs.

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Unemployment rose in February and analysts expect it to climb higher as the world\’s leading exporter last year is slammed by the global economic downturn.

The unemployment rate rose to 8.5 percent from 8.3 percent in January, figures released by the national labour office showed, and only widespread use of part-time contracts prevented a stronger increase.

With exports falling sharply and business investment also on the decline, "surveys of hiring intentions point to much worse to come," Capital Economics economist Ben May warned.

Timo Klein at IHS Global Insight said exports and investment would continue to suffer this year, and that "unemployment will therefore now remain on a rising trend until well into 2010."

GfK acknowledged that "a very large rise in unemployment would put a considerable damper on the consumer mood."

Germany, like many eurozone countries, is in its worst recession since World War II.
Trade with major partners has collapsed, especially after the global financial crisis worsened in September with the failure of US investment bank Lehman Brothers, an event that sent shock waves to all corners of the globe.

On Thursday, the European Central Bank said growth in loans to the private sector eased in January, while the German Ifo economic think tank reported that more businesses believed bank credit policies had become restrictive.

Analysts say demand for credit has also fallen as companies and households wait to see if economic and job conditions will get much worse this year.

For Rees at UniCredit, "further development of German unemployment is predetermined. Unfortunately the only way is up."

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The head of the German labour agency noted that three key indicators for the labour market, the unemployment rate, the number of jobs created and the number of vacant posts, were all moving in the wrong direction.
That could well throw a wrench into the German works despite positive news elsewhere.

On Tuesday, Ifo said that builders\’ and retailers\’ outlooks for the present and the next six months had brightened, while the ZEW research institute found last week that investor confidence had staged another surprising gain as well.

The GfK poll therefore completed a trio of upbeat key German indicators.

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