By Annika Breidthardt and Rene Wagner
BERLIN, Oct 29 (Reuters) - German wages had their sharpest rise in almost four years in July in stark contrast to the pay cuts and job losses seen in most of the euro zone.
The Federal Statistics Office said on Monday that German wages rose by 3.2 percent year-on-year in July, the highest increase since a 3.4 percent expansion in October 2008.
Wage increases this year have outpaced inflation, which runs around 2 percent, and are fuelling expectations that German consumers may spend more, in turn boosting demand for imports from European partners.
Even though Germans are traditionally more likely to save than spend, consumer activity has been a pillar of the economy, helping it to expand by 0.5 percent in the first three months of the year.
Separately, a government source said on Monday that Germany's income from tax receipts should be 7-8 billion euros higher this year than previously forecast.
Consumer sentiment rose to its highest level in more than five years going into November, suggesting domestic demand will carry the economy through the expected slowdown in the second half of this year.
Years of wage restraint helped the German economy shake off the financial crisis and euro zone debt crisis more easily than peers, and an office monitoring wage developments in Germany said the current rise should not remain a one-off.
"The additional purchasing power this year cannot remain a flash in the pan or private consumption will suffer," said Rainer Bispinck, head of the wage archives at the Hans Boeckler Foundation.
YEARS WITHOUT GROWTH
Bispinck expects wages to increase by 2.7 percent in 2012 as a whole after rising by 1.5 percent last year. The wage archives office calculated that between 2001 and 2009, German real wages shrank by 6.3 percent, making it the only country in Europe without growth.
After record levels of unemployment, which peaked in 2005, labour market reforms boosted competitiveness and helped cut joblessness to its lowest since reunification.
The same has not been true of the wider euro zone, where rising wages consistently outpaced German pay rises, fuelling the economic divergence that is a sub-plot of Europe's debt crisis.
The wage increases measured in the quarterly sample taken in July were due mainly to higher wage rounds agreed in the chemicals and metals industries, the office said.
In May, Germany's largest industrial union IG Metall clinched a deal that secured its 3.6 million workers their biggest pay rise in 20 years with a 4.3 percent pay increase.
Two months earlier, public sector workers won a 6.3 percent raise over two years.
The rise in July outpaced inflation, which is seen in October at 2 percent, and gathered momentum from previous quarters. They grew by 2.2 percent in April and 2.0 percent in January.
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