German unionists have turned into a key ally for ECB's President Mario Draghi. Across major industries, workers' representatives have pushed through hefty pay increases which significantly outstrip inflation. Fast real wage growth in Europe's largest economy, paired with growing employment and a lower savings ratio, will fuel Germany's consumption-driven recovery and soften deflationary forces in the currency union.
Public-sector employees and chemical workers have just followed the lead of their metallurgy colleagues, who last month secured a 3.4 per cent wage increase for 2015. State workers' pay will rise by 2.1 per cent this year and 2.3 per cent in 2016. Wages of employees in the chemical sector will climb by 2.8 per cent this year.
These wage deals are more generous than the nominal terms suggest. With 2015 inflation of just around 0.2 per cent, household purchasing power will get a strong shot in the arm. Real wages in 2014 already rose by 1.7 per cent, the fastest rate since the start of the data series in 2007.
And the odds are that stingy Germany will spend the extra cash, rather than tucking it away. The savings ratio has dropped from 10.5 per cent in 2008 to just 9.4 per cent. Low interest rates make saving less attractive.
Moreover, despite rising wages and an ill-designed minimum wage launched in January, the labour market keeps improving. In February, labour demand climbed to a new record high, the Federal Employment Office reported. The seasonally adjusted number of unemployed has fallen for five months in a row.
This helps correct Germany's excessive reliance on export demand. Over the last two years, domestic factors accounted for the bulk of the overall growth in real GDP. The German Council of Economic Experts, which has upgraded its 2015 growth forecast, expects the trend to continue, with domestic forces contributing 1.7 percentage points of the expected 1.8 per cent growth.
All this will make life easier for Mario Draghi, who is fighting the deflation spectre. Higher wages and increasing domestic demand in Germany will support the economic rebalancing within the euro area. By offsetting deflationary forces arising from weaker parts of the monetary union, a brimming German economy can do part of Draghi's job.
Public-sector employees and chemical workers have just followed the lead of their metallurgy colleagues, who last month secured a 3.4 per cent wage increase for 2015. State workers' pay will rise by 2.1 per cent this year and 2.3 per cent in 2016. Wages of employees in the chemical sector will climb by 2.8 per cent this year.
These wage deals are more generous than the nominal terms suggest. With 2015 inflation of just around 0.2 per cent, household purchasing power will get a strong shot in the arm. Real wages in 2014 already rose by 1.7 per cent, the fastest rate since the start of the data series in 2007.
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Moreover, despite rising wages and an ill-designed minimum wage launched in January, the labour market keeps improving. In February, labour demand climbed to a new record high, the Federal Employment Office reported. The seasonally adjusted number of unemployed has fallen for five months in a row.
This helps correct Germany's excessive reliance on export demand. Over the last two years, domestic factors accounted for the bulk of the overall growth in real GDP. The German Council of Economic Experts, which has upgraded its 2015 growth forecast, expects the trend to continue, with domestic forces contributing 1.7 percentage points of the expected 1.8 per cent growth.
All this will make life easier for Mario Draghi, who is fighting the deflation spectre. Higher wages and increasing domestic demand in Germany will support the economic rebalancing within the euro area. By offsetting deflationary forces arising from weaker parts of the monetary union, a brimming German economy can do part of Draghi's job.