German unemployment unexpectedly rose for a second month in July, signaling that uncertainty surrounding Greece and the future of the euro risks damping economic activity.

Joblessness increased a seasonally-adjusted 9,000 to 2.8 million, the Federal Labor Agency in Nuremberg said on Thursday. Economists had predicted a drop of 5,000. June was revised to show a gain of 1,000. Nonetheless, the unemployment rate remained at 6.4 per cent, the lowest level since German reunification.

The labor market’s weakness this month could be a first sign that regional spillovers are affecting Europe’s economic powerhouse. Even so, business confidence rebounded in July after a euro-area deal granted Greece talks toward a third bailout, preventing for now a default or potential exit from the currency union.

The labor market “remains the showcase model of the strong German economy,” said Carsten Brzeski, chief economist at ING Diba AG in Frankfurt. “Despite the small increase in non- seasonally adjusted terms, this labor market report is impressive.”

The Bundesbank said in its July monthly bulletin that "strong" increases in factory orders during April and May suggest acceleration in the economy in coming months.

The July increase is mostly a consequence of "temporary unemployment while young people search for jobs," the Labor Agency said in its report. "In the summer months they finish their occupational or academic training and then look for a position."

Bloomberg