German Labor Market Shows Signs of Cracking as Economy Struggles


German companies are thinking twice about hiring staff amid an increasingly uncertain economic environment, according to a study by the Ifo Institute.

A gauge measuring firms’ willingness to take on employees fell to its lowest level since February 2021 this month. Many in manufacturing, construction and trade plan to make do with fewer workers. The services sector is losing labor-market traction, too.

“The robust expansion of employment seen over the past few months has come to a standstill,” said Klaus Wohlrabe, head of surveys at Ifo. “Due to a lack of orders, companies are being rather cautious about filling vacant positions.”

Germany’s Economy Will Only Exit Its Malaise Slowly

Source: Destatis, Bloomberg survey of economists conducted Sept. 1-7

Germany’s economy has struggled after supply bottlenecks and the energy crisis that followed Russia’s war in Ukraine rocked its outsized manufacturing industry. Output will probably shrink this quarter, following a period of stagnation and a winter recession.

Despite the problems, unemployment has only edged up during the last year and remains far below the long-term average. Joblessness could, though, increase further until the economy rebounds. Economists surveyed by Bloomberg predict output will grow by just 0.6% in 2024 after contracting 0.3% this year.

“Companies’ willingness to hire new staff will presumably rise again once the economy recovers,” Wohlrabe said. “In the medium term, demographic change will deprive the labor market of more and more workers.”

A separate survey of purchasing managers showed last week that employment fell for the first time in nearly three years, with businesses highlighting shrinking backlogs of work and pessimism regarding economic activity over the next year.

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