UPDATE 1-German chemical workers agree pay rise

Wed Feb 5, 2014 11:36am EST

* Workers get 3.7 pct, need to renegotiate after 14 mths

* Employers' association warns of financial burdens

* Deal comes amid sign of low inflation, strong job market

HANOVER, Germany, Feb 5 (Reuters) - German chemical industry workers have agreed a 3.7 percent pay rise for the next 14 months, a climb-down from an original demand for a 5.5 percent increase.

Under the pact that affects 550,000 workers, loss making companies can postpone the wage hike by two months, the industry's employers association BAVC and the chemical workers union IG BCG said in separate statements on Wednesday.

"It's important for companies to remain competitive, especially now that businesses are facing more and more financial burdens," said BAVC president Margret Suckale, who is also head of personnel at BASF.

A proposed law that would force German industrial companies to pay a surcharge on the power they produce for their own use would limit its leeway for raising wages, BAVC has warned.

The union described the result as an "appropriate compromise" that still yielded a marked wage increase.

In May 2012, the union and employers had agreed on a 4.5 percent pay rise but that deal is expiring between Dec. 31 and the end of this month, depending on regional variations.

Rising wages and stronger German domestic demand are widely seen as remedy against euro zone imbalances. Recent signs of low inflation and a resilient labour market have shown there may be room for pay hikes without endangering price stability.

German inflation held steady at a 1.2 percent annual rate in January, bucking expectations for it to accelerate, mainly due to subdued energy prices.

Berlin is relying on German domestic demand to continue to prop up economic growth this year as weakness in the global economy weighs on exports. These hopes were borne out by strong German labour market data released last month.

The wage pact is in line with an agreement struck in May last year for 3.7 million engineering, metal and electrical sector worker, who received a 3.4 percent rise from July followed by a further 2.2 percent rise in May 2014.

The largest German chemical companies are BASF, Evonik, Bayer and Lanxess. Major foreign producers, such as Dow Chemical, DuPont and LyondellBasell, also operate sites in Germany, which is Europe's largest chemical producing nation.