Germany, the largest and strongest euro zone economy, is expected to shed jobs and surrender growth in the next year as its neighbors continue to struggle with debt, according to government officials and analysts.
Although unemployment was steady at 6.8 percent in September, an additional 9,000 Germans were looking for work, according to official figures from the Federal Labour Agency, slightly better than the 10,000 new unemployed predicted by Dow Jones. An additional 3.75 million of the approximately 81.7 million Germans were underemployed, said the Labour Agency.
The forecast for the remainder of 2012 was pessimistic. "It is to be expected that the German economy will cool down in the second half of 2012, also as a result of the European debt crisis," the Labour Agency said Thursday. "That will have an impact on the labor market, which nevertheless has shown itself to be robust until now."
A protracted malaise in Germany would have very negative impacts on the rest of the euro zone, which has looked to the country as a pillar of strength as the European Central Bank attempts to relieve the sovereign debt of weaker countries.
Germany's powerful factories, home to companies like Volkswagen AG (London: BMW) and Bayerische Motoren Werke AG (London: BMW), have powered the country to export-driven growth, allowing it to weather the global recession far better than countries like Spain and Greece. But slackening demand throughout Europe, along with slowdowns in India and China, has dampened the economy.
In Germany itself, car sales fell 4.7 percent in August, the greatest drop in six months. CEO Martin Winterkorn of Volkswagen, Europe's largest carmaker, said in a statement in September that the euro zone market is “noticeably harder and tougher." Car sales were down by 6.6 percent throughout Europe in the first eight months of 2012.
Earlier in September, Germany's ZEW Indicator of Economic Sentiment remained negative at 18.2, meaning most investors believe that conditions will worsen in the next six months. Although the country has avoided a recession thus far, a continued slowdown appears to loom.
"We still see GDP falling by about 1 percent next year after a small rise in 2012," wrote Jennifer McKeown, an economist with Capital Economics, in a research note on Sept. 18.