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Potential For Negotiated Wage Growth Upside In Early 2024

GERMAN DATA
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German negotiated wages rose by +3.29% Y/Y overall in December (vs +3.15% Nov), including an increase of +3.70% in the production sector (vs +3.71% prior), per Bundesbank data.

  • Negotiated wages apply to approximately 43% of all German employees, according to the Bundesbank, so are closely watched for developments in overall wage pressures. It rounds out the national estimates of negotiated wages for Q4 2023 ahead of the quarterly Eurozone-wide estimate expected to be released on Tuesday.
  • Even with the slight Y/Y uptick, overall German wage growth continues to show evidence of recent deceleration (as recently as October it printed +4.64%).
  • Wage growth in the production sector came in at the lowest rate since May 2023. The implication is that December's overall uptick seems to be have been driven by the services sector.
  • Wage pressures are considered to be one of the main obstacles to ECB rate cuts, as mentioned by a multitude of ECB policymakers recently, particularly in the light of weak Eurozone productivity data. German employee compensation makes up around 1/3 of the Eurozone total.
  • Looking ahead, regardless of the labour market softening, German negotiated wage growth is expected to tick up over the coming months, with particular upside potential in March when many agreements are being negotiated, driven by agreement expirations in the construction industry.
  • Additionally, an E1,800 "inflation compensation" one-off payment to state public workers and servants, agreed in December and affecting more than 5% of employed persons in Germany, will only be recognized in Q1 2024, which will also push up wage growth in the quarter, as one-off payments are included in the Bundesbank's tracker.
  • MNI has previously noted that the private sector German labour market softened considerably in the second half of 2023 (see 'Higher Services-Driven Employment Levelled By Lower Hours Per Person', Feb 16), particularly in manufacturing. This might put some downside pressure on the negotiation leverage of the worker unions going ahead.

MNI, Bundesbank

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German negotiated wages rose by +3.29% Y/Y overall in December (vs +3.15% Nov), including an increase of +3.70% in the production sector (vs +3.71% prior), per Bundesbank data.

  • Negotiated wages apply to approximately 43% of all German employees, according to the Bundesbank, so are closely watched for developments in overall wage pressures. It rounds out the national estimates of negotiated wages for Q4 2023 ahead of the quarterly Eurozone-wide estimate expected to be released on Tuesday.
  • Even with the slight Y/Y uptick, overall German wage growth continues to show evidence of recent deceleration (as recently as October it printed +4.64%).
  • Wage growth in the production sector came in at the lowest rate since May 2023. The implication is that December's overall uptick seems to be have been driven by the services sector.
  • Wage pressures are considered to be one of the main obstacles to ECB rate cuts, as mentioned by a multitude of ECB policymakers recently, particularly in the light of weak Eurozone productivity data. German employee compensation makes up around 1/3 of the Eurozone total.
  • Looking ahead, regardless of the labour market softening, German negotiated wage growth is expected to tick up over the coming months, with particular upside potential in March when many agreements are being negotiated, driven by agreement expirations in the construction industry.
  • Additionally, an E1,800 "inflation compensation" one-off payment to state public workers and servants, agreed in December and affecting more than 5% of employed persons in Germany, will only be recognized in Q1 2024, which will also push up wage growth in the quarter, as one-off payments are included in the Bundesbank's tracker.
  • MNI has previously noted that the private sector German labour market softened considerably in the second half of 2023 (see 'Higher Services-Driven Employment Levelled By Lower Hours Per Person', Feb 16), particularly in manufacturing. This might put some downside pressure on the negotiation leverage of the worker unions going ahead.

MNI, Bundesbank