WRAPUP 1-Buba ups German growth view, union seeks big raise

* Bundesbank now sees 2010 GDP growth of around 3 pct

* IG Metall will likely seek 4.5-8 pct rise for steelworkers

* No wage spiral likely – economist

(Combines Bundesbank, steel pay series; adds comment,
background)

By Annika Breidthardt

BERLIN, Aug 19 (BestGrowthStock) – Germany’s economy will bounce
back quickly this year, its central bank said on Thursday, as a
union for the steel industry that has played a key role in the
country’s recovery pressed to share the spoils via a hefty pay
rise.

Germany will see growth of some 3 percent in 2010, the
Bundesbank said on Thursday, up from the 2 percent it forecast
in June and bringing the central bank broadly into line with
market expectations.

In a sign that German workers feel emboldened by a record
upswing that has also delivered stronger than expected corporate
earnings, IG Metall — the country’s biggest blue collar union
— said it would likely demand a rise of between 4.5 and 8.0
percent for the steel sector next month. [ID:nLDE6791YR]

Germany’s growth spurt has also tied the single currency
zone’s economic prospects ever more closely to those of its
largest member state — a fact reflected by investors as they
bought in to European shares and core government bonds following
the Bundesbank report. [ID:nLDE67I0ZZ] [ID:nLDE67I14F]

The IG Metall pay award could set a benchmark for other
industries, one of the union’s regional leaders said.

Any rise in the range the union wants would help boost
domestic demand but also threaten to undermine the competitive
edge that more than two years of wage restraint have given the
export industries that have underpinned the recovery.

Sales abroad have helped Germany accelerate away from its
regional peers, with growth surging to 2.2 percent in the second
quarter — the fastest expansion since the country’s
reunification 20 years ago, and well ahead of the 1 percent
registered by the euro zone overall. [ID:nLDE67C0YX]

‘THE CRISIS WAS YESTERDAY’

Although only around 110,000 work in the steel industry in
Germany, IG Metall’s demand will surpass the 4.5 percent claim
it made last year, when it finally settled for a wage increase
of 2.0 percent, plus a one-off payment of 350 euros.

“(The pay rise) will end up being somewhere in between (4.5
and 8 percent),” said Oliver Burkhard, head of IG Metall in the
western state of North Rhine-Westphalia. “For us, this is the
first pay round since the crisis. The crisis was yesterday.”

Burkhard said he expected the steel pay talks to have an
impact on negotiations in other sectors.

“We’re a mark that will offer a steer to others,” he said.

Germany, which runs a current account surplus and relies
heavily on exports to drive growth, has come under pressure from
France and some other countries to boost domestic demand to help
address economic imbalances in the euro zone.

“I think there are signs that, over time, wages in Germany
will start to increase but I don’t think we will see a massive
increase,” said Citigroup economist Juergen Michels, who
expected an average pay rise of 2.5-3.0 percent next year.

“There is some increase — it’s going to help domestic
demand in Germany, so that it’s not just an export-driven story
for the recovery,” he added. “But it’s not likely to lead to a
fast erosion of Germany’s competitive advantage compared to the
other euro zone countries.”

In its report, the central bank also suggested the recovery
looked well balanced.

“Signs are increasing that the economic recovery in Germany
is increasingly self-supporting,” it wrote.

“From today’s point of view, one can expect an increase in
real GDP in Germany of around 3 percent on average in 2010,
after almost 2 percent in the June forecast.”

The Bundesbank’s forecast followed a statement by Economy
Minister Rainer Bruederle after last week’s stellar GDP data
that the economy was set for growth “well above two percent”
this year.

The Bundesbank said growth is likely to slow from now on.

“An argument for that is that the global economy will likely
follow a more moderate path of expansion in the second half of
the year,” the central bank said.

(Additional reporting by Tom Kaeckenhoff and Paul Carrel;
Editing by John Stonestreet)

WRAPUP 1-Buba ups German growth view, union seeks big raise