BERLIN (AP) -- Unemployment in Germany rose slightly in July amid slumping business confidence in Europe's largest economy, the federal employment office said Thursday.
The unemployment rate was 7.7 percent, up 0.2 percent from June, the agency said. It said 50,000 more Germans without work in July, for a total of 3.21 million unemployed on a seasonally unadjusted basis.
The upward blip came after a general decline in Germany's unemployment rate, which fell below 8 percent in May for the first time in almost 16 years. The unemployment rate was 8.9 percent at this time last year.
Frank-Juergen Weise, head of the Nuremberg-based employment agency, said the July rise was no reason for panic.
"The development of the labor market remains fundamentally positive, though it is less dynamic than a year ago," he said.
The report showed that unemployment in the former East Germany remained significantly higher than in the former West, at 12.8 percent compared to 6.4 percent.
The rise in unemployment comes following a report earlier in July showing that German business confidence fell to its lowest point in nearly three years. The Munich-based Ifo institute's business climate index showed a decline in current business confidence, and also the anticipation of weaker business in the coming six months.
Analysts at the time noted that high oil prices were eating into consumer purchasing power and slowing exports -- a key motor of the German economy.
Still, Timo Klein, an analyst with Global Insight in Frankfurt, said that the unemployment should continue to drop.
"Global Insight expects unemployment to fall modestly further during the second half of 2008 and possibly even in early 2009, despite the dampening influence from the overall slowdown in economic growth," he said.
He noted the agency was predicting a slowdown in German economic growth, adjusted for the number of working days, from 2.6 percent in 2007 to 2.0 percent in 2008, and 1.3 percent in 2009.
The decline can be attributed to "the aftereffects of the U.S. subprime crisis and the current inflation shock," he said.
Alexander Koch, an economist with UniCredit in Munich, said that the corporate sector is still expected to add jobs despite the slowdown, but at a slower pace.
"The trend in job creation should soften further in the coming months," he said.