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Labour costs in the German economy accelerated at their best pace since the depths of the financial crisis at the end of last year, as record low boosts the prospect of wage rises in Europe’s largest economy.

A measure of German labour costs per hour rose 1.5 per cent in the fourth quarter – its best jump in nine years – while overall costs were up 2.5 per cent in 2016, well above the 1.9 per cent average in the EU over last year.

German stats office Destatis said higher labour costs can be attributed to the falling number of hours worked by German employees as the country’s unemployment levels have hit the lowest since reunification in 1989.

The measure of labour costs includes wage and non-wage costs faced by employers. The prospect of higher employment should boost the chances of strong wage growth for German workers as inflation is on the march across Europe.

“German workers are in a good position to demand compensation for this via higher nominal wages”, said Claus Vistesen at Pantheon, who expects earnings to rise by 3.5-4 per cent this year.

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