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German trade group says coalition policies threaten competitiveness

By Sarah Marsh

BERLIN (Reuters) - Germany's BGA trade group criticised Chancellor Angela Merkel's coalition government on Thursday, saying its policies risked deterring investment and crimping economic growth by raising employment costs.

The group predicts German economic growth will pick up to 1.5 percent in 2014 from around 0.5 percent last year thanks to a strengthening global economy and rising demand for products "Made in Germany".

But the new government's plans may discourage firms from investing for longer-term success, BGA head Anton Boerner told a news conference. Data shows Germany's investment rate has shrunk to around 17 percent of output from some 20 percent in 1999.

"Politicians must look reality in the face and stop with 'social romanticism' so that we still receive as many orders in 10 years time as today," Boerner said.

"We are heading into a year that will be marked by global economic stimulus," he said. But the deal brokered between Merkel's conservatives and the centre-left Social Democrats late last year meant that "in Germany this will be accompanied by more regulation and rising labour costs".

Germany, one of the world's biggest exporters, has come under heavy pressure during the euro zone debt crisis to let wages rise to encourage its consumers to buy more from their neighbours in the currency bloc.

Major unions negotiated inflation-busting hikes in pay checks last year after years of wage restraint, although the Statistics Office said last month real wages across Germany were likely to have fallen in 2013.

The number of people in work in Germany hit a record high for the seventh consecutive year in 2013, data showed on Thursday, while more than one in four people is officially out of work in euro countries such as Spain and Greece.

But one in seven of the 1,000 firms surveyed by the BGA said it would invest less in view of the coalition deal while fewer than one in 20 firms intended to invest more.

Many German business leaders have, like Boerner, criticised the coalition deal, saying it rows back on economic reforms introduced a decade ago that have been credited with turning the former "Sick Man of Europe" into its powerhouse.

The coalition plan includes a nationwide minimum wage of 8.50 euros per hour to be phased in by 2017, a chance to retire at the age of 63 for those who have worked for 45 years, and higher pensions for mothers whose children were born before 1992.

"Solutions for the long-term problems and necessary steps to secure our competitiveness have been further postponed," said Boerner, adding that three quarters of firms surveyed did not believe the deal would make Germany more competitive.

"This means German companies will lose contracts to others around the world," he said, warning that Germany faced ever more competition from emerging markets like China.

Nonetheless the BGA said earlier this week it expects German exports, which have been the cornerstone of Europe's largest economy for decades, to grow by up to 3 percent in 2014 to a record 1.142 trillion euros.

(Editing by Ruth Pitchford)