German unemployment has fallen for the first time in 15 months yesterday in a welcome boost to Chancellor Gerhard Schröder ahead of elections in September.

However, Mr Florian Gerster, new president of the Federal Labour Office, warned that there was still no sign of a sustained turnaround in the German jobs market.

There were 4.16 million Germans out of work in March, a drop of 140,000 on the previous month.

When seasonally adjusted, there were 3.97 million people unemployed.

Falling unemployment will be a relief to Chancellor Schröder. He has to face voters having broken his promise to reduce unemployment to 3.5 million. He has distanced himself from the promise in recent months, blaming the global slowdown for rising unemployment and recession.

But there was more good news for the Chancellor yesterday, with the prediction that there will be further significant drops in unemployment in June and July. Added to rising confidence and encouraging production data, Mr Schröder will now hope to be able to win back voter confidence on the economy as he hits the election trail.

In recent months he has taken a beating on economic matters at the hands of his conservative challenger, Mr Edmund Stoiber, the premier of prosperous Bavaria.

But now Mr Stoiber has his own problems, as questions are asked about his role in €1.9 billion worth of soft loans given by the Bavarian State Bank to Kirch Media, the German media giant that filed for insolvency on Monday.

Mr Schröder has accused his challenger of "economic incompetence" and pledged yesterday to save the 10,000 jobs threatened by the Kirch Media bankruptcy.

But German economic recovery could still be thrown off course by deadlocked pay talks. Warning strikes continued to spread across the country yesterday as around 20,000 workers from the powerful IG Metall union downed tools.