By Todd Buell

NUERNBERG, Germany (MNI) – German businesses will not add net new
jobs until the second half of 2011 at the earliest, the head of
Germany’s Agency for Labor, Frank-Juergen Weise, told Market News
International Thursday.

An increase in average unemployment of 120,000 this year, projected
recently by the labor agency’s research arm IAB, is on the optimistic
side, Weise conceded, but he still expects it to pan out.

Though it is clear that the labor market in Germany is worsening
this year compared with 2009, it will outperform the agency’s worst
fears, he assured.

Still, he cautioned, companies may reach the point this year at
which they are no longer in a position to resort to Germany’s celebrated
short-time work subsidy scheme to keep employees on the payroll.

German companies will start making net new hires “at the earliest
in 2011, but more likely in 2012,” Weise ventured.

This is because they will unwind some of the measures taken to
combat the crisis once the economy rebounds. For example, during the
crisis companies lowered working hours, slashed temporary staff and drew
down overtime accounts, Weise explained.

“Correspondingly the expectation is that in a turnaround companies
will first use this buffer: They will use temporary labor, then
overtime, and only then will there be [new] hiring,” he predicted.

IAB’s estimate assumes that German GDP grows by 1.75% this year.
This is above the German government’s official forecast of 1.4% growth.
The European Commission recently described the government’s growth
forecast as too optimistic. The OECD today projected German GDP growth
at just 1.3% this year.

Still, Weise underscored that on a fundamental basis the IAB
calculated its figures solidly. “Nevertheless, we should first now wait
for the federal government’s new figures,” which will be released in
April, he said.

Information from the agency’s own reporting “confirms the
assessment that the labor market will be worse this year than in 2009,
but better than our worst fears,” Weise said.

He added that he expects average unemployment to rise by 120,000
this year, even though he characterized that projection as “the more
optimistic assessment.” He assured that his agency, which pays out
unemployment benefits, “is flexible enough to adjust if it is more —
but in no case do I believe that it will be less.”

He cautioned that some other assessments of the economy, measuring
the development of financial markets and consumer demand, are “to me a
bit too optimistic.”

“I believe we are, maybe this year, at the point” where companies
will no longer be able to use short-time work to avoid layoffs to the
same extent as previously, Weise said.

Discussions with and assessments from companies suggest that
short-time work “will only be about half of the level in 2010 as in
2009. And this in turn is a consequence of companies saying it no longer
makes sense, and [in these cases] there will be dismissals,” he
predicted. This scenario is taken into consideration in the projection
of a 120,000 rise in unemployment this year, Weise added.

Industries that are particularly vulnerable are those in which
profit margins are small, such as the automobile supplier industry, he
said. Just under 285,000 people were employed in the automobile-supplier
sector in 2009, according to industry association VDA.

Small and medium-sized firms in vulnerable industries could also be
hurt because their weak results last year will make it harder for them
to receive credit-based financing.

“We expect a larger number of dismissals to come from the medium
and smaller-sized firms,” Weise said. Big companies, on the other hand,
“are financed. If need be, they can access the capital markets.”

Weise said it was “good that Germany did its homework in raising
productivity and keeping wage growth moderate,” even though he can
understand concerns on this topic from a European perspective.

Nevertheless, “I could not recommend that Germany give up this
development towards efficiency and productivity to make a contribution”
to Europe’s economic balance, he insisted.

–Frankfurt bureau; +49-69-720142; tbuell@marketnews.com

[TOPICS: MGX$$$,MX$$$$,M$X$$$,M$G$$$,M$$CR$]