BERLIN (Bloomberg)

— German unemployment dropped more than economists forecast to a fresh two-decade low in January, bolstering economic growth as the region’s fiscal crisis threatens to undermine export demand.

The number of people out of work fell a seasonally adjusted 34,000 to 2.85 million, the Nuremberg-based Federal Labor Agency said Tuesday. That’s the biggest drop since March. Economists forecast a decline of 10,000, the median of 32 estimates in a Bloomberg News survey shows.

The adjusted jobless rate slipped to 6.7 percent from 6.8 percent.

“The labor market continues to develop positively,” said Ralph Solveen, an economist at Commerzbank in Frankfurt. “The downward trend in unemployment will fizzle out gradually over the coming months. Germany will continue to show a better economic performance than the rest of the euro area.”

Tuesday’s report is the latest to suggest the economy is weathering a debt crisis that the European Commission says may push the 17-nation euro area into recession. German business confidence jumped to the highest in five months in January and market research company GfK predicts consumer sentiment will increase for a fifth straight month in February.

“The labor market is the main supporting pillar of the economy and the reason why we’re relatively optimistic, at least for the second half of the year,” said Jana Meier, an economist at HSBC Trinkaus in Dusseldorf. “We can count on consumer spending to support growth. Germans aren’t euphoric shoppers and won’t be, but we have the impression they’re sure of their jobs and inclined to spend their money.”

At the same time, waning demand for German goods across the region is weighing on growth. The economy, Europe’s largest, will expand 0.3 percent this year after notching a 3 percent increase in 2011, according to the International Monetary Fund. The Washington-based fund forecasts a 0.5 percent contraction for the euro area as a whole.

“We have to recognize that despite the good start this year, there are domestic and external risks that are real risks such as the debt problems,” Frank-Juergen Weise, head of the labor agency, said at a briefing Tuesday. “We still expect that unemployment in unadjusted terms will stay just below 2 million on average this year.”

German airline Deutsche Lufthansa reached a pay agreement on Jan. 26 granting 33,000 workers a 3.5 percent wage increase, which the Ver.di labor union called “a good result which puts more money in employees’ pockets.” Business- management software maker SAP plans an average pay increase this year of 4 percent for its 16,300 workers in Germany, Euro am Sonntag reported Sunday.

Loewe, a German maker of high-end flat-screen televisions, forecast on Thursday that revenues and earnings will rise this year following a loss before interest and taxes in 2011.

The labor agency’s BA-X index, a measure of employment intentions, rose 2 points to 181 in January, the highest since the gauge was introduced in 2004. The rise in the index reflects a “stable” economic situation and also the fact it’s taking companies longer to fill open positions, the agency said.

The decline in German unemployment may slow as companies struggle to find workers for 1 million open jobs amid a shrinking population, Labor Minister Ursula von der Leyen said in an interview in Davos, Switzerland, on Jan. 25.

“Germany is in the middle of a demographic change,” von der Leyen said at the World Economic Forum annual meeting. “Our main concern is how to find qualified workers.”

Germany’s adjusted jobless rate was 5.5 percent in November, according to the latest harmonized Organization for Economic Cooperation and Development figures. That compared with 9.8 percent in France, 8.6 percent in Italy and a European Union average of 9.8 percent.

“Paradoxically, the German labor market’s whopping success story seems to entail some risks going forward,” Andreas Rees, chief German economist at UniCredit in Munich, said in a note to investors. “Highly qualified personnel becoming increasingly scarce may cause companies to move their businesses abroad or lose market share instead.”

--With assistance from Kristian Siedenburg in Budapest.