Non-essential firms have been ordered to close but the government may decide to extend the shutdown until the end of January. It means employers have tapped a state scheme to slash working hours and avoid layoffs.

Germany's labor market remained stable in December, according to official data released on Tuesday, as the country mulls extending its nationwide lockdown to curb the number of coronavirus cases.

The government ordered most non-essential businesses to close over the Christmas period, prompting employers to tap a state scheme that allows them to slash working hours and avoid layoffs.

The seasonally adjusted jobless rate in Europe's top economy stood at 6.1% in December, the same as in November, after falling for the three previous consecutive months, according to the BA federal labor agency.

Unemployment fell by 37,000 people, seasonally adjusted, to 2.7 million, although the figure is still nearly half a million higher than in December 2019.

Germany tightened virus restrictions last month, after already shuttering culture and leisure facilities in November.

BA data said another 660,000 people were placed on short-time employment between December 1 and 28.

Lockdown extension

It is understood that the lockdown will remain in place until the end of January as infection rates remain stubbornly high in the country.

Germany on Tuesday reported 11,897 new coronavirus cases and 944 deaths, ahead of a meeting between Chancellor Angela Merkel and regional leaders to decide on a possible extension of the shutdown.

"The rising number of short-time workers, as well as the longer-term impact from the ongoing second lockdown and a high risk of insolvencies in 2021, clearly argue against too much optimism," said ING bank analyst Carsten Brzeski.

BA chairman Detlef Scheele said the pandemic was having a "very visible" impact on Germany's labor market.

"The stabilizing effect of short-time work has, however, secured employment and prevented higher unemployment," he added.

Before the coronavirus pandemic, Germany's unemployment rate had hovered at a record low of around 5%.