Economists predict muted German minimum wage hit

AP News
Posted: Apr 10, 2014 8:21 AM

BERLIN (AP) — The introduction of Germany's first-ever national minimum wage will only have a modest negative impact on growth, according to a group of four leading economic think tanks in the country.

In a report Thursday, the Joint Economic Forecast Project Team raised its German growth outlook for this year to 1.9 percent from last October's prediction of 1.8 percent, and predicted a further modest pick-up to 2 percent in 2015 despite a small hit from the introduction of a national minimum wage.

Europe's biggest economy grew by only 0.4 percent last year but has been showing signs of accelerating amid strong demand for its exports and rising consumer demand.

Next year will see the introduction of Germany's first mandatory national minimum wage, set at 8.50 euros ($11.75) per hour. Chancellor Angela Merkel's new center-left coalition partners insisted on it, and it will be phased in over two years.

According to the group, some 4 million people will be eligible for the new wage next year and about 200,000 jobs will be lost. Only a tenth of a percentage point will be shaved off Germany's annual gross domestic product as "the jobs lost have comparably low productively levels."

Despite the jobs lost, the group predicted that the overall jobless rate will remain steady at 6.7 percent. One of the think tanks dissented, arguing that the effects could be either positive or negative.

Another source of uncertainty cited is the possibility of sanctions against Russia — Germany's 11th-biggest trading partner — in the Ukraine crisis. Axel Lindner of the Halle Institute for Economic Research said a total breakdown of trade, including a halt to energy deliveries from Russia, is "so unlikely that we're not considering it further."

However, the economists did consider the hypothetical consequences of a drastic 4 percent contraction in the Russian economy, saying it would cut 0.1 to 0.3 percentage points of German growth.