GERMANY: IG Metall Wage Demands May End Up Compatible W/ ECB 2% Target

Initial IG Metall wage demands in headlines this week seem roughly compatible with the ECB's 2% goal, at least under the important assumption that they are tamped down notably come a final agreemnet. It points away from second-round effects through the wage channel being at play currently in the Eurozone. * IG Metall demands 5% higher wages over 12 months according to Handelsblatt reporting: irke-wollen-fuenf-prozent-mehr-geld-und-jobsicherheit/100256579.html. * Historically, actual annual wage growth in IG Metall-negotiated contracts has been around the order of 50% of initial demands (or sometimes a little less than that) - see the below table. * Bargaining power of IG Metall may currently be more limited as German industry remains under international competitive pressure. * With Germany productivity growth in positive territory (1.5% Y/Y on per person basis in Q2), the IG demands may ultimately yield wage growth roughly compatible with the ECB's 2% inflation goal (Eurozone productivity admittedly has been softer at 0.7% Y/Y). ----------------------------------------------------------------------------- Round Opening demand Agreed table p.a. over term Share of demand (12m) increa