UPDATE 3-German union IG Metall seeks 5.5 pct wage hike in key state


* Union demand lower than the 6.5 pct hike sought last year

* Economists expect another year of above-inflation raises

* Looming election, calls by euro partners add weight to demands (Adds detail, quotes, reaction from Suedwestmetall)

By Hendrik Sackmann

LEINFELDEN-ECHTERDINGEN, Germany, Feb 26 (Reuters) - German trade union IG Metall is seeking a pay hike of 5.5 percent for industrial workers in the southwestern state of Baden-Wuerttemberg, a wage demand that is likely to set the tone across Germany in an election year.

The demand for around 740,000 metalworkers and engineers in the industrial heartland state, home to some of Germany's leading carmakers such as Daimler and Porsche , is lower than the union's call for 6.5 percent raise nationwide last year.

But it is expected to lead to another above-inflation increase, given the relative strength of Europe's largest economy and calls from struggling European partners for Germany to do more to boost consumption.

"If you look at the track record of the last years, demands were always much, much higher than the eventual outcome so it's very unlikely that they will get this demand," said Carsten Brzeski, senior economist at ING.

"In the end we'll probably see them settling with employers somewhere between 2 and 3 percent because the prospects for the German economy are weaker than they were two years ago."

The union argues that workers should get their "fair share" of corporate profits and says raising wages would help give the German economy a much-needed boost from consumption, which is expected to prop up growth in Germany this year even as exports to neighbouring states weaken due to the euro zone crisis.

"In the wage round of 2013 we want to provide significant impetus to boost purchasing power," said Joerg Hofmann, head of IG Metall's Baden-Wuerttemberg regional wage commission.

He added firms in the sector had experienced a good year in 2012 and added that there were no signs that the business situation of companies was about to deteriorate significantly.

But Hofmann noted energy firms were suffering from an investment backlog and companies with clients in southern Europe were having difficulties and, in some cases, were even resorting to government-subsidised short-time working.

A 5.5 percent wage hike would cost the sector in Baden-Wuerttemberg around 1.65 billion euros ($2.18 billion).

"Almost no growth and a demand for 5.5 percent more money - those two things do not go together," said Stefan Wolf, Chairman of Suedwestmetall, the group that represents employers in the region.. He added that almost a third of companies were struggling with below-average order levels at the moment.


The board of IG Metall is due to recommend its national wage hike demand for around 3.7 million metal and electronics workers nationwide on March 4.

Last year IG Metall secured its biggest pay rise in 20 years - a 4.3 percent wage hike over 13 months, increasing the sector's wage costs by around 7 billion euros.

The federal election due in September is emboldening unions to push for inflation-busting raises as they expect politicians courting votes to back their demands.

While nominal wages grew by an average 1.5 percent per year between 2001 and 2011, failing to keep pace with inflation, German paychecks outstripped a 2.0 percent inflation rate to rise by 2.6 percent last year.

Years of wage restraint in Germany helped push unemployment down close to a post-reunification low in Europe's largest economy but have also contributed to the imbalances in the euro zone, which are partly to blame for the region's crisis by boosting German competitiveness.

Some economists like Peter Bofinger, an economic adviser to the government, say Germany should give workers strong wage hikes to reduce the relative competitiveness of German industry, thereby helping even out the euro zone's economic imbalances.

The wages of some 12.5 million workers are up for negotiation this year and economists reckon their paychecks will outpace inflation to rise by between 2.5 and 4.0 percent. Negotiated wages climbed by an average 2.7 percent in 2012.

Negotiations for the metalworking and electronic industries in Baden-Wuerttemberg are due to start on March 21.

Other sectors are calling for even stronger wage hikes, with the construction industry seeking a 6.6 percent raise and the public sector, utility workers and Deutsche Bahn employees seeking a 6.5 percent hike.

($1 = 0.7567 euros) (Reporting by Hendrik Sackmann in Leinfelden-Echterdingen; Writing by Michelle Martin in Berlin; Editing by Noah Barkin, Ron Askew)



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