11:00 AM EST, 11/13/2024 (MT Newswires) -- Wage negotiations in the German metals and electronics industry, led by labor union IG Metall, are by far the most important wage negotiations in the German industry and serve as a de facto benchmark for the overall sector, said UBS.

It directly impacts 3.64 million workers -- 8.5% of total employees and 17% of those covered by collective wage bargaining -- and is closely followed. The current negotiation round, which started on Sept. 11, concluded on Tuesday.

The settlement foresees wage -- base pay -- increases of 2% in April 2025 and 3.1% in April 2026. In addition, there will be a one-time payment of 600 euros paid "at the latest" in February 2025, down from 1,500 euros that was paid in February 2024. The settlement runs 25 months until Oct. 31, 2026.

Assuming a representative monthly wage (Ecklohn) of 3,386.50 euros, which was taken from the official wage tables, and assuming the one-off is paid in February 2025, UBS calculates this settlement implies an average wage growth of just 0.3% in 2025 -- mainly reflecting the decline versus the 2024 one-off payment -- and 1.4% in 2026 when there will be no one-off payment or an average of 0.85% over 2025-26.

This is much lower than the 4.8% deal struck in November 2022 and compares with the average wage growth in manufacturing of 2.8% year over year in 2011-19, wrote the bank in a note to clients.

This outcome is in line with the weak state of German manufacturing, stated UBS. While labor market easing is moderate so far -- unemployment rate up 60bps to 3.5%, weakness is most visible in manufacturing.

Manufacturing employment has started to decline notably in energy-intensive industries and the share of manufacturing firms reporting labor shortages has declined to 19% from a peak of 42% in 2022, still slightly above its pre-COVID level of 16%.

At the same time, the services sector looks more resilient, with employment stable at record highs and one-third of firms reporting labor shortages -- down from a peak of 50%. Firms' use of short-time work across sectors remains at very low levels -- 0.2% of all employees.

The next large wage round to watch is the public sector at the federal level where the current contract expires in December and which usually sets the trend for Germany's services sector, added the bank. Labor union Verdi is demanding a wage increase of 8% compared with 10.5% in 2023 and the negotiations will start on Jan. 24, 2025.

In 2023, the agreed settlement was for a 6% increase over 2023-24. In addition, there will be negotiations in smaller sectors, the largest of which is building cleaners -- in December, covering 490,000 employees.

Lastly, the minimum wage is set to increase by 3.3% to 12.82 euros in January 2025, covering about 5.6% of all employees. To watch is the debate triggered by Labor Minister Hubertus Heil who has called for an increase to 15 euros from 2026, according to UBS.