by Alexander Hübner and Ilona Wissenbach

MUNICH/FRANKFURT (Reuters) – Workers at German carmakers and engineering groups will receive a 5.5% pay rise over 25 months as part of a deal with the companies, IG Metall said on Tuesday, the largest industrial union in the country.

The agreement, sealed after an eighteen-hour marathon of negotiations, is expected to benefit some 3.9 million employees of companies such as Mercedes-Benz, BMW, Siemens and Thyssenkrupp, ending strikes by dozens of thousands of workers.

It provides for a wage increase of 2% from April 2025 and a further 3.1% from April 2026, the regional sections of the IG Metall union said.

This increase is lower than the 7% requested by the union, but higher than a prior offer from employers, who proposed an increase of 3.6% over a period of 27 months.

The deal, which will be monitored by the European Central Bank (ECB) for its possible effect on inflation, comes as the euro zone’s largest economy enters its second year of contraction and is mired in a government crisis after the breakup of Chancellor Olaf Scholz’s coalition last week.

Berlin must also face risks linked to trade tensions with China and uncertainties linked to the return of Donald Trump to the presidency of the United States next January.

The deal also comes at a particularly difficult time for German industry, with some of the country’s biggest companies, including Volkswagen, planning cost cuts to face competition from their Chinese rivals.

Volkswagen will begin a third round of wage negotiations and possible factory closures next week after asking workers at its namesake brand to accept a 10 percent pay cut, arguing that labor costs are too high.

A spokesperson for the car manufacturer’s works council welcomed the union agreement but refused to comment on its consequences on ongoing negotiations within the group.

“We need cost relief, not a burden, and we have made proposals to do so,” he said.

(Alexander Huebner and Ilona Wissenbach, with contributions from Christina Amman; Diana Mandiá)

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