May 12, 2018 / 11:02 AM / 10 months ago

German construction workers seal inflation-busting wage deal

BERLIN (Reuters) - German unions and employers on Saturday reached an inflation-busting pay hike of roughly six percent for more than 800,000 construction workers, the strongest wage deal sealed so far this year in Europe’s biggest economy.

The IG Bau union said construction workers in West Germany would get a pay hike of 5.7 percent while wages in East Germany would jump by 6.6 percent. Both steps are backdated to May 1.

The deal, reached after 19 hours of mediation by former Economy Minister Wolfgang Clement, has a duration of 26 months.

“That’s the highest wage deal sealed nationwide this year,” IG BAU head Robert Feiger said, adding that the result ensured workers finally got their fair share of the economic boom.

The German economy is enjoying an unusually prolonged upswing, now in its ninth year, expanding by 2.2 percent in 2017. With employment at record highs, construction companies in particular are struggling with massive labour shortages.

German unions in April reached a three-stage pay hike deal for more than 2 million public sector workers that is likely to boost the consumer-led upswing.

The complex wage agreement gives public sector workers a 3.2 percent pay raise backdated to March 1, followed by a 3.1 percent increase from April 2019. In a third stage, wages will rise by a further 1 percent from March 2020.

The public sector deal came in the wake of an unusually high pay hike reached in February for 3.9 million workers in the industrial sector, amounting to a roughly 4 percent annual rise for 2018 and 2019.

The European Central Bank is keeping a close eye on German wage negotiations for any sign that wage growth is picking up, potentially helping lift inflation and giving the euro zone’s central bank added leeway to start winding down its massive stimulus programme.

Salary growth has been missing despite a brisk expansion in the euro zone economy over the past year, largely fuelled by the central bank’s easy money and by a booming global economy.

The German wage deals are likely to bolster the ECB’s confidence that salaries in the bloc’s largest economy are finally picking up, paving the ground for a long-awaited recovery in inflation.

Reporting by Michael Nienaber; Editing by Peter Graff

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