Boom in exports restricted to western Germany

German unemployment rose again last month, with 132,000 people joining the dole queue. The seasonally adjusted figure was up by 17,000 to 4.396 million, or 11.5 per cent of the workforce.

The only glimmer of hope in the steadily climbing curve was in the west, where unemployment fell slightly. This was attributed to an export boom, which has brought more benefit to traditional western industries than to the construction-dominated east.

Labour market statistics are unreliable in the summer, because of the distorting effect of holidays in the 16 Lander falling at different times. But the latest statistics, published yesterday by the Federal Labour Office, confirmed a pattern of weakening activity in the east and growth slowly picking up in the west.

Driven by the low German mark, exports are booming, benefiting the industrial heartlands of western Germany. In the east, however, the construction sector continues to shrink.

"Growth is divergent in the jobs market," admitted Bernhard Jagoda, president of the Labour Office. "There is an increasing discrepancy between west and east German Lander."The jobless rate in western Germany now stands at 9.8 per cent, while in the east it is at 18.2 per cent.

The gap is still widening. According to figures issued this week by the Economics Ministry, conditions are in place for a strong recovery in the west, while the east is plunging back into recession. The ministry reported that orders had risen in June by 1.5 per cent, projecting an annual growth rate of 2.25 per cent this year. All the upswing is forecast to come from the west, however.

"The problem with eastern Germany is that too much of what is produced there is not exported," Mr Jagoda lamented yesterday. His comments were seen as a tacit admission that exports remain Germany's only salvation, highlighting the importance of the low mark to the economy.

The latest figures are expected to focus attention at the Bundesbank, the governing council of which is meeting next Tuesday. There is speculation that the Bundesbank plans a small interest rate hike in order to stop the mark's fall but doing so might damage the country's export-driven recovery.

There are no plans in the pipeline to ease conditions for industry or improve the labour market. The Kohl government's plans to reform taxation and the pension system, thus easing the burden on employers, were sunk last week by the opposition-controlled upper house of Parliament.

Even the agreed cut in the "solidarity surcharge", which pays for east German reconstruction, has run into funding problems.

Diane Coyle, page 19