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GERMAN DATA: Overall Real Wage Growth Slowed in Q3; Nuances in the Details

GERMAN DATA
Data BulletEurozoneGermanyCEEMEABulletMarketsFixed Income BulletsForeign Exchange Bullets

German real wages rose for the sixth consecutive quarter in Q3, by 2.9% Y/Y, but still remained 2.9% below Q3 2019 levels. The yearly growth rate came down a bit from Q2 (when it was 3.1%), and lower inflation cushioned a bit of a more substantial nominal wage growth deceleration to +4.9% Y/Y Q3 from +5.4% Q2 (+6.4% Q1). The takeaway here is that one of the ECB's core assumptions behind a persistent return of inflation to target of slowing wage growth appears to materialize at least in the case of Germany. In the negotiated sector, some stickiness remains in the data, but that might be explained away.

  • If they were to continue to grow at broadly the current pace, real wages would be back at all-time highs on a quarterly basis in Q2 2025. There could be a case being made that consumer demand was to pick up once previous highs on wages are being met again. However, looking at current labour market trends in Germany, there is at least a solid risk that wage growth is set to deteriorate further and consumers will remain cautious.
  • "Looking only at full-time employees according to their earnings category, the quintile with the lowest earnings (1st quintile) had the strongest earnings growth in Q3 2024, with average nominal wage growth of 7.3 % compared to the same period of the previous year. This continued the trend of nominal wages of low earners increasing the most in percentage terms", Destatis adds - also see top right chart.
  • Looking at the negotiated sector, the latest data, which is available for up to November, shows an uptick in the yearly growth rate (excl. one-offs +5.5% Y/Y vs +4.8% Oct, also see bottom right chart). However, the agreements leading to this data should have mostly been made some time ago, and for example the recently concluded large negotiations in the metal- and electrical industries will only result in around 1.1% Y/Y pay growth in 2025 and 2.3% in 2026 according to JP Morgan calculations ('JPM: IG Metall Pay Deal Consistent With Undershoot Of ECB Wage Forecast' - MNI, November 12).
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German real wages rose for the sixth consecutive quarter in Q3, by 2.9% Y/Y, but still remained 2.9% below Q3 2019 levels. The yearly growth rate came down a bit from Q2 (when it was 3.1%), and lower inflation cushioned a bit of a more substantial nominal wage growth deceleration to +4.9% Y/Y Q3 from +5.4% Q2 (+6.4% Q1). The takeaway here is that one of the ECB's core assumptions behind a persistent return of inflation to target of slowing wage growth appears to materialize at least in the case of Germany. In the negotiated sector, some stickiness remains in the data, but that might be explained away.

  • If they were to continue to grow at broadly the current pace, real wages would be back at all-time highs on a quarterly basis in Q2 2025. There could be a case being made that consumer demand was to pick up once previous highs on wages are being met again. However, looking at current labour market trends in Germany, there is at least a solid risk that wage growth is set to deteriorate further and consumers will remain cautious.
  • "Looking only at full-time employees according to their earnings category, the quintile with the lowest earnings (1st quintile) had the strongest earnings growth in Q3 2024, with average nominal wage growth of 7.3 % compared to the same period of the previous year. This continued the trend of nominal wages of low earners increasing the most in percentage terms", Destatis adds - also see top right chart.
  • Looking at the negotiated sector, the latest data, which is available for up to November, shows an uptick in the yearly growth rate (excl. one-offs +5.5% Y/Y vs +4.8% Oct, also see bottom right chart). However, the agreements leading to this data should have mostly been made some time ago, and for example the recently concluded large negotiations in the metal- and electrical industries will only result in around 1.1% Y/Y pay growth in 2025 and 2.3% in 2026 according to JP Morgan calculations ('JPM: IG Metall Pay Deal Consistent With Undershoot Of ECB Wage Forecast' - MNI, November 12).