German wage deal sets scene for moderation: Chemical workers accept 1.6% rise and flexible hours

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WESTERN German chemical workers yesterday accepted a cut in real earnings which is expected to set a moderate tone for the 1994 pay bargaining round in other sectors.

At the same time the Federal Statistics Office confirmed that the economy had stagnated in the final quarter of 1993.

The 2 per cent wage rise agreed by the chemical workers is well below the current inflation rate of 3.5 per cent.

A wage freeze for the first three months of a 15-month contract backdated to the end of last October means that the chemical workers will receive an increase of only 1.6 per cent in effect.

'This is an incredible deal,' said Bernhard Eschweiler, chief economist at JP Morgan in Frankfurt. 'It marks a major breakthrough.'

The deal included a more flexible agreement on working hours so that employees who opt to work less than a standard 37.5 hours a week will get less pay while those who do more will earn overtime.

'This flexibility will help job security while the pay claim will reduce high unit wage costs in Germany,' said Gerhard Grebe, chief economist with Bank Julius Bar in Frankfurt.

He added that the deal would put pressure on the engineering workers' union, IG Metall, to step down from its claim of a wage increase of up to 6 per cent.

The statistics office cautioned that the fourth-quarter figures, showing GDP unchanged in western Germany from the third quarter and down 0.7 per cent year-on-year, were provisional.

'When the economy will pick up cannot be deduced from these estimates,' it said. Economists expect the adjusted 1993 final-quarter GDP figures due to be released by the Bundesbank in March to show a decline from the third quarter.

'The signs are of an economy that remains weak and will stagnate at least until the summer,' said Jurgen Pfister, senior economist with Commerzbank in Frankfurt. 'Whether there is a recovery then is a very open question.'

In a more upbeat interpretation the economics ministry in Bonn said the 1.9 per cent decline in western German GDP over the whole of last year 'masked a light economic recovery which set in after the sharp decline in the first quarter of 1993'.

However, the statistics office said that in real terms 1993 GNP in western Germany fell 2.3 per cent from the previous year.

Of the components contributing to the fall in output, plant and capital investment fell 14.7 per cent year-on-year, government consumption 1.3 per cent, construction spending 0.5 per cent and private consumption just 0.2 per cent.

'There has been a drastic reduction in the savings ratio as consumers tried to defend living standards,' Mr Pfister said.

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