German trade unions have been fighting hard to protect jobs

According to the Federal Labour Agency, the number out of work dropped by 89,000 to 3.995 million. That pushed the unemployment rate down to 9.6%.

The decline, coupled with improving business confidence, boded well for Germany's recovery, analysts said.

Better conditions should help consumers shake off a 2007 tax rise, they said.

However, a separate report showed that German retail sales unexpectedly declined in October.

Despite increasing evidence that Germany is putting its slowdown behind it, a lot will depend on the willingness of consumers to continue spending.

Germany will introduce a higher value-added tax of 19% in the new year, and some analysts are worried that the increased costs may take some bite out of consumer demand from January.

Cross-border

According to the Federal Statistics Office, sales fell by 0.2% in October from the previous months. On an annual basis, sales dipped by 0.8%.

Many economists now expect the German economy to keep growing in 2007, but at a slower pace than in 2006.

A similar pattern has emerged in France, with consumer confidence dropping in November, amid increasing fears that economic growth may have stalled.

France's statistical office, Insee, said the consumer confidence index dropped to minus 25 in November from minus 21 in October.