German jobless fall biggest since 1950

BERLIN, Jan 4 (Reuters) German unemployment posted its sharpest monthly fall since 1950 in December, pushing the jobless rate below 10 per cent for the first time in over four years in a boost for Chancellor Angela Merkel's government.

The seasonally adjusted jobless total in Europe's biggest economy fell by 108,000 from November, the Federal Labour Office said, the ninth consecutive decline and a far stronger drop than the 45,000 forecast by economists in a Reuters poll .

''That is an unbelievably good number,'' said DekaBank economist Sebastian Wanke.

The Munich-based Ifo institute's closely-watched gauge of corporate sentiment surged to its strongest level since reunification in December, showing firms expect the economy to shrug off a hike in sales tax that went into effect this week.

German gross domestic product (GDP) expanded by around 2.5 percent in 2006 -- its best rate since 2000 -- and optimism is rising that growth will stay robust in 2007 as new hiring keeps consumer spending solid and offsets the sales tax increase.

German airline Deutsche Lufthansa AG announced this week it planned to hire 3,000 new staff this year, including 2,000 at Frankfurt and Munich airports.

The sharp drop in unemployment will be welcomed by Merkel's ''grand coalition'' government of conservatives and Social Democrats (SPD), which took office just over a year ago and made cutting unemployment their top priority.

A rise in the unemployment total to post-war highs in early 2005 under former Chancellor Gerhard Schroeder was a key factor hitting his popularity and leading him to call early elections which he lost to Merkel.

Until now, Merkel has received little credit for the jobless drop over the past year, which economists say is a result of restructuring by German firms and labour market reforms introduced by Schroeder.

''Painful reforms and wage restraint pay off after a while, and very handsomely,'' said Holger Schmieding, an economist at Bank of America in London. ''This is the clear lesson to be drawn from Germany's stunning labour market turnaround in 2006 after five years of misery.'' RATE BELOW 10 PER CENT Germany's adjusted unemployment total was 4.115 million in December with the unemployment rate dipping to 9.8 per cent from 10.1 per cent, the Federal Labour Office said. It was the first time since September 2002 that the rate fell below 10 per cent.

The politically-sensitive unadjusted jobless total, which dipped under the 4 million mark in November for the first time in four years, rose 12,000 in December to 4.008 million.

''The number of unemployed rose a lot less than is typical for December,'' Labour Office head Frank-Juergen Weise said, referring to the unadjusted figures. ''The labour market has profited from the improvement in the economy in the past year.'' In 2006 as a whole, Germany's average unemployment total fell 374,000 on the year to 4.487 million and the jobless rate eased to 10.8 percent from 11.7 percent in 2005.

Alexander Koch, an economist at UniCredit, said a new seasonal benefit designed to help avoid winter layoffs in weather-sensitive sectors such as construction had helped limit the increase in the unadjusted jobless total in December.

''In any case, even if biased by special factors, the continuing robust economic situation remains the driver of the renewed improvement in the labour market,'' he added.

REUTERS PDM RK0916