According to statistics released on Wednesday by Germany's Federal Labor Agency, the country's adjusted jobless rate in October rose to 7 percent from 6.9 percent. [Michele Tantussi / Bloomberg]

BERLIN - German unemployment rose for the first time in more than two years in October as growing pessimism among businesses and investors points to a weakening of Europe's largest economy.

The number of people out of work rose a seasonally adjusted 10,000 to 2.94 million, the Nuremberg-based Federal Labor Agency said on Wednesday.

Economists had forecast a decline of 10,000, the median of 31 estimates in a Bloomberg News survey showed. The adjusted jobless rate rose to 7 percent from 6.9 percent.

"One month of increase isn't enough to rewrite the scenario" of a further drop in unemployment, said Christian Jasperneite, an economist at M.M. Warburg & Co in Hamburg. "We know that we'll see a weakening, but it won't be any more dramatic just because of a disappointing figure in one month."

German companies are growing more reluctant to hire workers as Europe's worsening fiscal crisis clouds growth prospects and prompts governments to toughen austerity measures. German investor sentiment fell to the lowest in almost three years last month and business confidence dropped to a 16-month low.

Job cuts

The Organization for Economic Cooperation and Development (OECD) on Monday said the eurozone will show a "marked slowdown with patches of mild negative growth". The Paris-based group, which didn't give growth projections for Germany, called on European leaders to prevent contagion from spreading.

Deutsche Bank AG, Germany's biggest lender, signaled more jobs may be at risk as the European sovereign debt crisis and global economic slowdown crimp investment-banking revenue. Chief Financial Officer Stefan Krause said on Oct 25 the Frankfurt-based bank will continue to adjust its "platform" if the environment persists after announcing 500 job cuts.

Economic slowdown

The German economy may fail to grow in the current quarter, the Berlin-based DIW institute predicted on Oct 26.

In 2012 the expansion will slow to 0.8 percent from 2.9 percent this year, the country's top economic institutes said on Oct 13 in their twice-yearly report commissioned by the government. In April, the group forecast growth of 2 percent next year.

"Companies are growing more cautious and keeping hiring plans on hold," said Andreas Scheuerle, an economist at Dekabank in Frankfurt. "They're hardly able to plan given the current uncertainty. Still, we expect unemployment to decline further over the coming months, if at a slightly weaker pace."

Porsche, Daimler

While banks may be forced to eliminate more jobs as the sovereign debt crisis erodes earnings, carmakers, the industrial mainstay of the German economy, are still taking on staff as demand in the luxury car market is holding up.

Porsche AG broke ground on Oct 18 on a 500-million euro ($682 million) expansion of a factory in Leipzig where the sports-car maker is hiring more than 1,000 workers. Daimler AG, maker of Mercedes-Benz cars, said on Oct 27 it employed 3,360 more people in Germany at the end of the third quarter than it did a year earlier as it targets record car sales.

Germany's harmonized jobless rate was 6 percent in August, according to the OECD. That compared with 9.1 percent in the United States, 9.9 percent in France, 7.9 percent in Italy and an OECD European average of 9.4 percent.

Bloomberg News