German automaker Daimler said Monday it had decided to cut working hours at its Brazilian truck factory instead of 1,500 jobs as it seeks to adapt to lower demand.

With the Brazilian economy experiencing its worst contraction in six years, Daimler Trucks had recently warned it wanted to make drastic reductions at its Sao Bernardo do Campo factory outside Sao Paulo where around 10,000 people are employed.

But Daimler Trucks said Monday that after talks with labour leaders it had been agreed to cut output and salaries at the site by 20 percent from September to May 2016.

The Brazilian state will compensate half the loss in salary.

Meanwhile the employees will have their jobs guaranteed for one year.

Daimler said it was responding to a 44 percent drop in demand for trucks in Brazil.

"For several months there has been pure and simple many less trucks ordered and a rebound in the market is unfortunately not expected," a Daimler spokesman told AFP recently.