Recovery fails to lift employment gloom

Workers made redundant in Germany by Escom could have trouble finding new jobs. Unemployment stands at 10.3 per cent of the workforce, a shade below post-war records. The economic recovery expected in the second half of this year is not expected to make big inroads into the jobless total, writes Diane Coyle.

Chancellor Helmut Kohl admitted as much yesterday. Speaking at the Federal Labour Office, he said: "We know from past experience that an economic revivial has a positive impact on the labour market only after some delay. The business cycle will not contribute to more employment this year."

There was further evidence that the economy is starting to recover. Industrial output increased by 1.1 per cent in May, the Bundesbank reported yesterday. It was still 2.1 per cent lower than a year earlier, but the third monthly rise in succession was far bigger than economists had predicted.

The May increase was driven by manufacturing output rather than construction. Of particular interest was a 2.4 per cent increase in the production of intermediate goods, which typically expands strongly in the early stages of a recovery.

"The German economy bottomed at the end of the year and is now on the road to recovery," said Richard Reid, chief economist at investment bank UBS in Frankfurt. But he warned that growth would be subdued until confidence recovered too - something high unemployment is likely to prevent.