Data released on Tuesday showed that German unemployment dropped by a non-seasonally adjusted 9,300 in February, bringing the total number of unemployed down to 2.911 million, the best February reading since German reunification. In seasonally-adjusted terms, unemployment decreased by 10,000, leaving the seasonally-adjusted unemployment rate unchanged at 6.2%.

German labour market is still indicating solid domestic demand. Employment is hitting new highs, vacancies are currently also at all-time highs. The combination of higher wages and low inflation provides an excellent prerequisite for strong consumption in the months ahead. German labour market will remain an important growth driver this year and beyond, but bigger challenges lie ahead.

Some small cracks have started to show.  The number of short-term work schemes has started to increase and stands at the highest level since November 2013. Moreover, employment expectations in the manufacturing industry have been dropping since last summer, suggesting the industry is facing cooler external headwinds.

"It seems that the relatively mild winter weather has supported the labour market. Interestingly, there does not seem to any noticeable impact from the refugee crisis on the labour market, yet." notes Carsten Brzeski, Research Analyst at ING.