Germany's Merz says economy his main focus after jobless numbers hit 12-year high

*

Unemployment rate rises to 6.6% in unadjusted terms

*

German GDP grew by 0.3% in Q4, beating expectations

*

Inflation slightly above ECB's 2% target in January

By Maria Martinez

BERLIN, Jan 30 (Reuters) - German Chancellor Friedrich Merz said on Friday that boosting the economy would be his main focus this year, after data showed that unemployment has powered past the 3 million mark to a 12-year high.

Merz has promised to revive Europe's largest economy ?after two years of mild contraction with a sharp increase in infrastructure and defence spending. While the economy as a whole is now showing greater resilience, Merz's measures are taking longer than ?expected to translate into better conditions on the ground.

"The rise in the number of unemployed to more than three million is ?an alarm signal," Merz wrote on social media platform X.

"The economic upturn must be this year's ?central priority."

Labour Office figures on Friday ?highlighted the lag in the jobs market from the economic stagnation of the last few years, with 177,000 more people out of work in January than in December, bringing ?the total to 3.08 million.

The unemployment rate jumped by 0.4 percentage ?points to 6.6% in seasonally unadjusted terms. On a brighter note, German gross domestic product grew by 0.3% in the fourth quarter compared with the previous three months, beating the consensus forecast of 0.2%. On an annual basis, ?the Statistics Office confirmed its first estimate of 0.2% growth.

Separate data ?showed German inflation ?unexpectedly nudged slightly higher in January, accelerating to 2.1% year-on-year, data showed. Analysts polled by Reuters had forecast EU-harmonised inflation remaining unchanged from December at 2.0%.

SLUGGISH LABOUR MARKET

"There is currently little momentum in the labour market," said Labour Office director Andrea Nahles. "At ?the start of the year, unemployment rose markedly for seasonal reasons."

The picture improved slightly when accounting for seasonal trends. On that basis, the Labour Office said, the number of people out of work was unchanged from December at 2.976 million and the seasonally adjusted jobless rate was steady at 6.3%. Analysts and economists in a Reuters poll had predicted a seasonally adjusted rise of 4,000 in the jobless number. Economy Minister Katherina Reiche said Germany must pivot toward new "growth engines", arguing that traditional export strengths "no longer carry our growth". "The biggest domestic ?risk remains ?any sudden shift from national depression to national complacency," said Carsten Brzeski, global head of macro at ING, calling for structural reforms. Germany lowered its growth forecasts for 2026 and 2027 on Wednesday, as fiscal-policy measures have not taken effect as quickly ?as previously assumed.

"The German government's large fiscal package is unlikely to fall on fertile ground, as the vast majority of companies do not believe in the long-awaited restart in economic policy," said Joerg Kraemer, chief economist at Commerzbank.

The inflation data showed core inflation, which excludes food and energy, was 2.5% in January, up from 2.4% in December, though Commerzbank's senior economist Ralph Solveen said it remains lower than in the autumn, when it was fairly stable at around 2.75% .

"The small pick-up in German inflation in January won't worry the ECB too much as it was driven mainly by an increase in food inflation," ?said Franziska Palmas, senior Europe economist at Capital Economics, adding that officials would be encouraged by the fact that services inflation, which had picked up towards the end of last year, had eased significantly.

The German inflation data comes ahead of the euro zone reading, expected on Wednesday. Economists polled by Reuters forecast euro zone inflation at ?1.7% for January, down from 1.9% in December. (Additional reporting by Friederike Heine and Miranda Murray; editing by Mark Heinrich, Hugh Lawson and Gareth Jones)