Bank of Spain urges wage restraint, despite economic growth

The Bank of Spain said Friday the flagging domestic economy resumed growth at the end of last year and urged a continuation of wage-hike moderation to ensure the recovery remains in place.

The bank's habitual call for wage restraint has added significance in the light of ongoing talks between the country's labor unions and the government to hammer out an agreement on making the country's collective bargaining system more flexible.

It also coincides with a French and German initiative for a euro-zone competitiveness pact that would put an end to indexing wages to inflation, a longstanding demand of the Bank of Spain, but one the government and labor unions, and surprisingly employers to some extent, would be disinclined to see put into practice.

In its latest bulletin on the economy released Friday, the Bank of Spain noted that average salaries last year rose by only 1 percent, the smallest increase in a decade and 0.8 percentage points below average inflation for the year, thus entailing a loss of purchasing power. The bank attributed a large part of contention of wage hikes to an average salary cut of 5 percent for the public sector introduced by the government as part of its austerity drive. Wages under collective bargaining agreements rose 1.3 percent last year.

"It is vital that such wage restraint should continue in the coming quarters," the bank said. It said it was important to keep in mind during negotiations on amending the collective bargaining system that the recent pick-up in inflation to rates of over 3 percent is a one-off phenomenon deriving from tax hikes introduced by the government, hikes in regulated electricity and gas prices, and higher oil prices.

"Indirect effects on companies' costs must be limited and changes in prices must not give rise to a widespread revision of inflation expectations that feed through to final prices through the prices set by producers or through wage bargaining," the bank said.

In current collective agreements in Spain, 45.6 percent of workers have contracts with clauses indexing their wages to inflation.

The central bank said Spain's GDP rose 0.2 percent in the period October-December from the previous three months when it was unchanged. It was up 0.6 percent from a year earlier and contracted 0.1 percent for the year.