Germany sees largest wage rise in nearly 4 years


German wages had their sharpest rise in nearly four years in July in stark contrast to the pay cuts and job losses seen in most of the eurozone.

The Federal Statistics Office said on Monday (29 October) that German wages rose by 3.2% year-on-year in July, the highest increase since a 3.4% expansion in October 2008.

Wage increases this year have outpaced inflation, which runs around 2% , and are fuelling expectation that German consumers may spend more, in turn boosting demand for imports from European partners.

Even though Germans are traditionally more likely to save than spend, consumer activity has been a pillar of the economy, helping it to expand by 0.5% in the first three months of the year.

Separately, a government source said on Monday that Germany's income from tax receipts should be €7 billion to €8 billion higher this year than previously forecast.

Consumer sentiment rose to its highest level in more than five years going into November, suggesting domestic demand will carry the economy through the expected slowdown in the second half of this year.

Years of wage restraint helped the German economy shake off the financial crisis and eurozone debt crisis more easily than peers, and an office monitoring wage developments in Germany said the current rise should not remain a one-off.

"The additional purchasing power this year cannot remain a flash in the pan or private consumption will suffer," said Rainer Bispinck, head of the wage archives at the Hans-Böckler Foundation.

Bispinck expects wages to increase by 2.7% in 2012 as a whole after rising by 1.5% last year. The wage archives office calculated that between 2001 and 2009, German real wages shrank by 6.3%, making it the only country in Europe without growth.

After record levels of unemployment, which peaked in 2005, labour market reforms boosted competitiveness and helped cut joblessness to its lowest since reunification.

The same has not been true of the wider eurozone, where rising wages consistently outpaced German pay rises, fuelling the economic divergence that is a sub-plot of Europe's debt crisis.

Labour cost differences across Europe can be huge, according to recent figures by the European statistical office Eurostat.

Hourly labour costs for 2011 range from €3.5 in Bulgaria to €39.3 in Belgium, the highest in the European Union.

In Germany, the hourly labour cost is €30.1 compared to France's €34.2. This German austerity in wages has often been decried in France where it is assimilated to unfair competition.

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