German unemployment hit a 16-year low of 7.8 per cent in June, according to data from the Federal Labour Office.

Overall, the number of people without a job fell by 123,000 from the previous month to reach 3.16 million.

The Associated Press noted that this surpassed analysts expectations, as a drop of only around 80,000 has been predicted.

Frank Juergen Weise, director of the employment office, told the newswire: "Unemployment is falling and employment is growing further. Also, companies' demand for labour remains high."

He added that labour rates traditionally rise as the summer jobs market gets underway.

The employment data is likely to come as welcome news to Germans, who have been hit by rising living costs. Inflation in the euro zone reached four per cent last month.

Germany's unemployment rate fell by 0.3 per cent to 8.1 per cent in April, but rose again in May.