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German Jobless Jolt
Subject Business Cycles
Topic International Finance and Employment, Unemployment, and Inflation
Key Words Unemployment, Gross Domestic Product, Leading Indicators, Economic Growth, Recession
News Story

One of the successes of the European Economic Union has been the decrease in unemployment in Germany and in many of the EEU countries. The unemployment rate had steadily decreased throughout 2000. Germany just announced that for the second month in a row its jobless rate had risen, increasing concerns about the outlook for the economy. The seasonally-adjusted unemployment figures in February raise the national unemployment rate to 9.3 percent of the workforce, or 3.8 million individuals. German chancellor, Gerhard Schröder, was forced to revise the government's projection that unemployment would fall to 3 million individuals by the end of 2002. Schröder's new estimate is 3.5 million unemployed.

Despite the upturn in unemployment, the German government did not revise its estimate that the gross domestic product (GDP) adjusted for inflation would grow by 2.8 percent this year. The Deutsche Bank, however, lowered its prediction to 2 percent and one of Germany's leading think tanks lowered its forecasted growth rate to 2.4 from 2.5 percent. Many other private sector economists have also lowered their estimates of economic growth.

Germany's Economic Union partners remain upbeat about continued economic expansion, as does Germany's machine tool industry federation. Machine tool orders are a leading indicator of cyclical swings and the federation reports a continued backlog of orders after record growth in 2000. Even though the federation is expecting a slight decrease in orders due to the U.S. slowdown, export demand from Europe is expected to continue to be strong.

(Updated April 1, 2001)

Questions
1. What are 'leading indicators?' Why are machine tools considered to be a leading indicator?
2. The article indicates that there is considerable disagreement about the future direction of the German economy. Why is there uncertainty about the future of the economy? What are some sources of this uncertainty?
3. Unemployment is considered to be a 'lagging' indicator of the business cycle. Explain why this is likely to be the case.
Source Haig Simonian, "German jobless rise heightens fear for economy," The Financial Times, March 7, 2001.

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