Unemployment in Germany dropped slightly in September, official data showed on Thursday, but the Federal Labour Agency warned a looming downturn in Europe's top economy would pound the job market. In raw or unadjusted terms, headline unemployment sank, with the total number of people out of work down by 117,000 in September from August to stand at 2.79 million, the Labour Agency said. The unadjusted jobless rate fell to 6.5 percent, down 0.3 points. One year ago, the rate was 6.6 percent. The Agency noted that a decline in unemployment was typical in September, as companies take on workers again after the summer holiday break. But it said that the upswing had been "somewhat weaker than in past years". The seasonally adjusted rate held steady at 6.8 percent, with 9,000 more people looking for work than in August. Economists polled by Dow Jones Newswires had predicted a steeper increase of 10,000 jobless. "It is to be expected that the German economy will cool down in the second half of 2012, also as a result of the European debt crisis," the agency said. "That will have an impact on the labour market, which nevertheless has shown itself to be robust until now." As major companies such as carmaker Opel announced short-time work schemes to cope with slumping demand, the Agency said that 3.75 million people in Germany were under-employed -- 174,000 fewer than one year ago. A senior economist at ING Belgium, Carsten Brzeski, noted that the number of unemployed had hit the lowest level since November 2011, good news for Chancellor Angela Merkel who is widely expected to win re-election next year. He said the strong labour market was in a virtuous circle with the economy, but perhaps not for long. "Low unemployment, record high employment and wage increases supported private consumption and helped cushion the industrial slowdown," he said. "Looking ahead, however, it is doubtful whether private consumption can really take over the baton as the main growth driver for the German economy. The labour market is, slowly but surely, losing steam and all forward-looking indicators also don't bode well." Eurozone economist Sylwia Hubar from Natixis bank agreed. "Weaker economic expectations do not leave space for any upbeat labour market developments," she said. "Until the end of the year we do not expect any momentum in the German labour market." Alexander Koch of UniCredit said the official figures masked some negative aspects of the labour market because those on the dole who take part in temporary job schemes do not surface in the data as unemployed but rather under-employed. But he said that Germany looked strong in contrast to many of its ailing eurozone neighbours and that the bank was confident the "resilient labour market" would help the country avert a recession in the second half of 2012. The Ifo institute said Monday that its closely watched survey of business confidence dropped unexpectedly in September for the fifth month running, leading economists to conclude that Germany was headed for a sharp slowdown. The German government said this month that its outlook for the second half of this year was stable, following growth of 0.5 percent in the first quarter and 0.3 percent in the second quarter, but substantial risks remain.
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