Real wages in Germany fell at record speed last year. The reason for this was the highest inflation in the history of the Federal Republic. The gross monthly earnings of employees, including special payments, grew by 3.4 percent, the fastest since the beginning of the time series in 2008, as reported by the Federal Statistical Office on Tuesday. At the same time, however, consumer prices increased more than twice as much at 7.9 percent. As a result, real wages fell by an average of 4.1 percent.
There had already been a minus in each of the two previous years of the Corona crisis. According to experts, the balance sheet this year should not be quite as negative. All leading institutes expect inflation to fall. The Kiel Institute for the World Economy (IfW), for example, predicts an inflation rate of 5.4 percent, which should fall to 2.2 percent in 2024.
The Federal Ministry of Economics assumes that gross wages and salaries per employee will increase by 5.2 percent in the current year. Wage increases, some of them significant, were agreed in many sectors. The approximately 3.9 million employees in the metal and electrical industry, for example, will receive 8.5 percent more money in two steps and a one-off payment of 3,000 euros net. The Verdi union is currently demanding a wage increase of 15 percent for twelve months for Deutsche Post employees due to high inflation.
Nevertheless, experts are assuming that private consumption will act as a brake on the economy in view of persistently high inflation. The federal government also expects private consumer spending to fall this year in real terms. Nevertheless, the economy as a whole is expected to grow, even if only by 0.2 percent.
A central banker says a recession will be avoided
There were also positive signals from the central banks: France’s head of the central bank, Francois Villeroy de Galhau, believes that more favorable economic prospects will provide support in the fight against high inflation in the euro area. The economy in the currency area, be it in Germany, France or elsewhere, is doing better than feared months ago, said the Council member of the European Central Bank (ECB) on Tuesday at an online event from various media. “We will very likely avoid a recession this year,” he noted. Should a recession nevertheless occur, it will be mild, limited and temporary. “I don’t think we have to choose between fighting inflation or avoiding a recession.”
The ECB raised key interest rates by another half a percentage point on Thursday. It was the fifth increase in interest rates since the interest rate turnaround in July 2022. ECB President Christine Lagarde also announced a further increase of 0.50 percentage points at the upcoming interest rate meeting on March 16th. General inflation in the euro area fell from 9.2 percent in December to 8.5 percent in January. However, core inflation, which excludes volatile energy, food, alcohol and tobacco prices, held steady at December’s 5.2 percent.