German unemployment increased in March on declining economic activity.

A report from the Federal Labor Agency showed that seasonally adjusted unemployed persons in the largest Eurozone economy rose 69,000 in March, bigger than 50,000 increase in February. Economists had expected a relatively small increase of 52,000.

Meanwhile, the adjusted jobless rate rose to 8.1%, while economists had forecast the rate to remain at February's revised 8%. On an unadjusted basis, the unemployment rate came in at 8.6%, slightly bigger than 8.5% seen in February.

Separately, the Federal Statistical Office said the ILO jobless rate stood at 7.4% in February, up from 7.3% in January. A year ago, the jobless rate was 7.6%. The number of unemployed totaled 3.18 million in February, larger than 3.14 million in the previous month.

Meanwhile, the number of persons in employment rose 31,000 or 0.1% annually to 39.81 million in February. Compared to the previous month, the number of the employed dropped 14,000.

Eckart Tuchtfeld, Commerzbank's analyst said unemployment is rising on account of the recession, but the increase so far has been relatively moderate, thanks to widespread adoption of short-time work.

Economists expect the pace of job losses to quicken considerably and from mid-year at the latest, the economic slump will put much more people out of work. Companies will lay off more staff in the last six months of this year as production and order intake point to a very weak first quarter. By that time, short time work would not be an adequate solution. The Commerzbank sees around 4.2 million unemployed persons by the end of the year.

In its economic outlook, the Organization for Economic Co-operation and Development said the collapse in world trade is depressing growth particularly in Germany. The real GDP is projected to drop around 5% this year, before starting a slow recovery in 2010.

The OECD estimates the jobless rate to rise to almost 12% by end of 2010 as growth converges only slowly towards its potential rate and subsidized short-time work expires. Given the very large increase of unemployment, possibly the new wage agreements will trade off wage increases against job security.

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