Mr Schroeder has vowed to act

The seasonally unadjusted unemployment rate dropped to 11.1% in March, down from 11.3% the previous month.

But with more than 4.6 million people still out of work, the government remains under severe pressure to create jobs - a key promise in last September's election campaign.

"In view of economic stagnation and the war in Iraq, no improvement is in sight on the labour market," Federal Labour Office chief Florian Gerster said.

Package promised

Last month, Chancellor Gerhard Schroeder announced a package of measures aimed at liberalising the economy and creating jobs.

But in order to implement his plans, which will make it easier for firms to hire and fire staff, he faces a range of entrenched interests, especially among his core supporters in the trade union movement.

"Particularly in this difficult situation, we need these reforms," Mr Schroeder told parliament on Thursday.

"We will implement them quickly."

Time to act

The German economy has slowed sharply in recent months, dipping close to recession after September 11, and now has effectively ground to a halt once again.

Many blame the country's highly restrictive labour laws and other red tape, which make it expensive for companies to set up shop in Germany.

When he was first elected in 1998, Mr Schroeder promised to tackle unemployment, but he has instead presided over an embarrassing surge in joblessness.