The Federal Labour Office said on Tuesday unemployment fell by a seasonally adjusted 17,000 to 3.193 million. The decline, while slightly less than the median 20,000 forecast by economists in a Reuters poll, could encourage Germans to spend more freely after some euro zone neighbours complained Germany was importing too little from them.
The development of employment and the higher wages that come with (more productive labour) give Germany's economic recovery substance and its own dynamic, Economy Minister Rainer Bruederle said in a statement following the release of the data.
The adjusted unemployment rate remained steady at 7.6 percent, in line with the Reuters poll.
Germany -- Europe's largest economy -- grew at its fastest rate since reunification in the second quarter and more than twice as fast as the overall euro zone, where some of its partners face the risk of a double-dip recession.
Exports have driven the rebound but consumer morale, long seen as Germany's weak point, is also increasingly upbeat. Business sentiment rose to its highest in more than three years in August.
The euro zone jobless rate for July stood at a much higher 10 percent.
Greek unemployment posted a record jump in May, the last month for which data are available, as austerity measures to rescue the country's finances lead to job cuts.
ALL INGREDIENTS THERE
Germany has faced criticism from euro zone partners -- including France -- for not doing enough to stimulate domestic demand that could in turn boost neighbouring economies.
The impressive performance of the labour market can only become a real success story if it eventually leads to a pick-up in private consumption. All ingredients are in place for this to happen now, said Carsten Brzeski of ING Financial Markets.
It is not only the drop in unemployment which bodes well for private consumption but also job creation. Since the beginning of the year, employment growth has been on a positive trend, he said.
Carmaker Daimler said last month it would add 400 full-time jobs at its Mercedes-Benz plant in Rastatt, Germany, from 2011 by making temporary positions permanent.
The metals industry has also been hiring more full-time workers, though the total number of jobs will likely remain flat for the rest of the year, an industry official said earlier this month.
Germany shed fewer jobs than others in the global crisis, thanks partly to reforms promoting labour force flexibility as well as state spending to encourage firms to put staff on Kurzarbeit -- shorter hours -- instead of firing them.
EXPORTS TO FADE
Growth in exports is expected to fade in the second half of the year as the outlook for some of Germany's trading partners is less rosy and the government is pressing ahead with 80 billion euros ($100 billion) of budget cuts over the next four years. Chancellor Angela Merkel's government is due to approve more elements of the austerity plan on Wednesday.
The American economy is going quite badly right now, Heinrich Alt of the Labour Office told a news conference.
There are a bunch of risks. The development so far is stable but we cannot ignore that the situation is more fragile than at other times of the upswing.
Economists said that may not dampen the job market significantly.
The economy will not be able to sustain these high growth rates. The tempo will slow in the autumn and next year. But the slowdown won't be dramatic enough to have a major impact on the labour market, said Eckart Tuchtfeld of Commerzbank.
Federal Statistics Office figures showed the number of people in work in Germany rose to 40.305 million in July from 40.296 million in June. The headline unadjusted unemployment total fell by 4,000 on the month to 3.188 million.
(Additional reporting by Maria Sheahan in Frankfurt; Writing by Annika Breidthardt, editing by Mike Peacock/Ruth Pitchford)