(Bloomberg) -- Germany’s biggest labor union struck a key wage agreement with employers that may raise pay for about 3.9 million workers and avert strikes in the country’s beleaguered manufacturing sector.
The deal covering the metal and electric parts industries will see salaries increase by 2% in April 2025 and by another 3.1% a year later, IG Metal said in a statement. The pact also includes a one-off payment of €600 ($638) by February.
“In a time when the economy is worsening, we managed to reach an agreement that strengthens the purchasing power of employees,” said Daniel Friedrich, chief negotiator and district manager of IG Metall Küste. “We are taking on responsibility and giving employees and companies stability in uncertain times.”
Workers had initially sought a 7% increase over 12 months when they announced their demand in June, saying members are still struggling with higher living costs even after a deal in 2022 already lifted pay by 8.5%. They also threatened more walkouts in the absence of an agreement this week.
Employers represented by the Gesamtmetall association initially argued that the difficult situation of the German industry doesn’t leave much room to raise wages.
“The negotiation result goes to the limits of what is possible,” said Angelique Renkhoff-Mücke of the Association of the Bavarian Metal and Electrical Industry, known as vbm.
The IG Metall deal is important because it tends to signal the direction of travel for wage growth in the whole economy. That matters especially for the European Central Bank, which has said that slower increases next year will be key to bringing inflation sustainably back to the 2% target.
Europe’s biggest economy has failed to mount a proper rebound from Covid and Russia’s invasion of Ukraine, with a weak manufacturing sector presenting the biggest source concern. Companies have been struggling with soft demand abroad, but also structural problems like high energy costs, excessive bureaucracy and growing competition from China.
Volkswagen AG is among firms planning wide-ranging cost cuts that may see plant closures in its home market. Others have announced thousands of job reductions, while plans by foreign companies including Intel Corp. to invest in Germany fell apart.
Firms and consumers have also struggled with an unclear direction for economic policies under Chancellor Olaf Scholz’s government. The country is set to face early elections on Feb. 23 after the three-party coalition fell apart over budget negotiations.
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