Unemployment in Germany has risen above the politically sensitive 4 million level, reaching its highest November level in five years.

The number of Germans without a job rose by 96,100 to 4,025,842, unadjusted for seasonal factors, last month, the country's federal labour office said.

At the start of 2003 we will certainly see a rise in unemployment to over 4.5 million Ralph Solveen, Commerzbank

The rise, which took the unemployment rate to 9.7% compared with 9.4% in October, affected in particular the former communist east of the country.

The unemployment rate in eastern Germany hit 17.6%, compared with 7.8% in the west of the country.

'Bad sign'

The data was worse than analysts had expected.

"It's a bad sign that there was a rise despite warm November weather, which should have helped through higher employment in the construction sector," said Manuela Preuschl of Deutsche Bank in Frankfurt.

When seasonal factors were taken into account, the November unemployment record looked even worse, rising 35,000 from October to 4.161 million.

Some observers forecast that unemployment was now poised to top 4.5 million.

"At the start of 2003 we will certainly see a rise in non-seasonally adjusted unemployment to over 4.5 million as a result of the usual winter effects," said Ralph Solveen of Commerzbank.

Reforms

The figures came shortly after the release of data showing that German retail sales fell unexpectedly in October.

Adjusting for inflation, sales were 0.7% lower than in September.

The figures highlighted the distress being felt by Europe's largest economy, and the challenge facing Chancellor Gerhard Schroeder, whose popularity has plummeted since his re-election in September.

When he was first elected, he staked his reputation on his ability to reduce unemployment, blaming the global economic downturn when jobless figures rose.

In a move to get the German people back to work, Mr Schroeder has proposed transforming job centres into virtual temping agencies, which would put pressure on the unemployed to take any job that is available.

Mr Schroeder also wants to remove much of the bureaucracy surrounding self-employment.

Schroeder's conservative critics have called for relaxed labour laws to make it easier for companies to hire and fire staff.