German unemployment rose to a postwar record in February after the economy contracted and Chancellor Gerhard Schroeder's changes to welfare rules led more people to register as jobless.

　　The number of job seekers rose by 161,000 to 4.88 million in February, adjusted for seasonal swings, the Nuremberg-based Federal Labor Agency said yesterday. The adjusted unemployment rate rose to 11.7 percent, a seven-year high, while the unadjusted jobless total jumped to 5.22 million from 5.04 million in January.

　　The faltering economy, reductions in jobless benefits and tighter restrictions in eligibility for benefits that took effect in January contributed to a loss of support for Schroeder's Social Democratic Party in an election in the state of Schleswig-Holstein last month. The increase in unemployment has also dented the prospects of a recovery in consumer spending this year.

　　"The psychological effect of this unemployment figure is absolutely catastrophic," said Martin Huefner, chief economist at HVB Group, Germany's second-biggest bank. "People are psychologically shocked and that may cause them to delay purchases of consumer durables."

　　Even before the labor-market changes, unemployment had risen for 11 months as companies eliminated jobs or moved them to countries with lower labor costs. Deutsche Bank AG, General Motors Corp, KarstadtQuelle AG and Henkel KGaA were among companies announcing job cuts in Germany in the past six months.

　　"The government can't do anything in the short term to solve the unemployment problem," Thomas Straubhaar, head of the Hamburg-based HWWA economic institute, one of the top six sponsored by the German government, said in an interview. "We will struggle with very high unemployment for many years."

　　Germany's economy shrank 0.2 percent in the fourth quarter from the third as companies bought less equipment, government spending fell and consumers held back on purchases. The BAG association of 5,000 retailers predicts that sales will decline for a fourth straight year in 2005.

　　Economists expected the German unadjusted jobless total to increase by 80,000, the median of 23 forecasts in a Bloomberg survey showed. The adjusted unemployment rate is higher than it has been since March 1998, when it was 11.5 percent. The record rate was set in October 1997 at 11.8 percent.

　　The decline in gross domestic product at the end of 2004 may cause Schroeder's council of economic advisers to cut its forecast for growth this year.

　　Germany's economy may expand no more than 1 percent, Bert Ruerup, the panel's chairman, said.

　　That contrasts with 3.6 percent growth economists expect the US economy to generate this year, according to a Bloomberg survey.

　　(Bloomberg News)