UPDATE 4-German jobless numbers hit 12-year high, inflation edges up

Analysts polled by Reuters had forecast EU-harmonised inflation remaining unchanged from December at 2.0%. Separately, Labour Office figures on Friday highlighted the lag in the jobs market from the economic stagnation of the last few years, with 177,000 more people out of work ​in January than in December, bringing the total to 3.08 million.

The number of ‌unemployed people in Germany hit a 12-year high on Friday, surpassing the 3 million mark, while inflation moved back above the European Central Bank's 2% target, clouding the outlook for Europe's largest economy after a stronger-than-expected end to 2025. German ⁠inflation unexpectedly nudged slightly higher in January, accelerating to 2.1% year-on-year, data showed. Analysts polled by Reuters had forecast EU-harmonised inflation remaining unchanged from December at 2.0%.

Separately, Labour Office figures on Friday highlighted the lag in the jobs market from the economic stagnation of the last few years, with 177,000 more people out of work ​in January than in December, bringing the total to 3.08 million. The unemployment rate jumped by 0.4 percentage points to 6.6% in seasonally unadjusted terms.

Chancellor Friedrich ‍Merz has promised to revive the economy after two years of mild contraction, pledging a sharp increase in infrastructure and defence spending. While the economy as a whole is displaying greater resilience, Merz's measures are taking longer than expected to translate into better conditions on the ground. "There is currently little momentum in the labour market," said Labour Office director Andrea Nahles. "At the start of ⁠the year, unemployment ‌rose markedly for seasonal reasons."

The picture improved ⁠slightly when accounting for seasonal trends. On that basis, the Labour Office said, the number of people out of work was unchanged from December at 2.976 million and the seasonally adjusted jobless ‍rate was steady at 6.3%. Analysts and economists in a Reuters poll had predicted a seasonally adjusted rise of 4,000 in the jobless number. ECONOMY RESILIENT IN FACE OF TRADE ​TURMOIL

On a positive note, German gross domestic product grew by 0.3% in the fourth quarter compared with the previous three months, beating the ⁠consensus forecast of 0.2%. On an annual basis, the Statistics Office confirmed its first estimate of 0.2% growth. "This chimes with some other signs that the economy is turning the corner, including a pick-up in ⁠activity surveys and industrial orders," said Franziska Palmas, senior Europe economist at Capital Economics.

She nevertheless noted that GDP was still only 0.5% higher than levels seen just before the pandemic. Economy Minister Katherina Reiche said Germany must pivot toward new "growth engines", arguing that traditional export strengths "no longer carry our growth".

"The biggest domestic risk ⁠remains any sudden shift from national depression to national complacency," said Carsten Brzeski, global head of macro at ING, calling for structural reforms. Germany lowered its growth forecasts ⁠for this and next year on Wednesday, ‌as fiscal-policy measures have not taken effect as quickly as previously assumed.

"The German government's large fiscal package is unlikely to fall on fertile ground, as the vast majority of companies do not believe in the long-awaited restart in economic ⁠policy," said Joerg Kraemer, chief economist at Commerzbank. (Additional reporting by Friederike Heine and Miranda Murray; editing by Mark ‍Heinrich, Hugh Lawson and Gareth Jones)

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