Hay Group expects inflation rate to exceed average wage increases in the UAE this year
Real wages are expected to fall in the UAE this year as inflation is set to exceed salary rises, according to the Hay Group.
A forecast issued by the Hay Group division of Korn Ferry said that in the UAE, inflation of 4.6 percent combined with pay increases of only 4.1 percent means that real wages will fall by 0.5 percent.
“With the introduction of VAT and subsequently rising inflation in the UAE and Saudi Arabia, we expect to see a drop in real wage increases across the region,” said Harish Bhatia, associate client partner at the management consultancy.
“The percentage of salary increase or decrease will vary by role, industry, country and region, but one thing is clear, on average, employees are not seeing the same real pay growth they did even one year ago.”
He said employers in Saudi Arabia and the UAE are bracing for a challenging time as they battle with managing business costs and meeting the expectations of disgruntled employees.
Businesses and employees are dealing with additional complexities of managing costs after the introduction of Value Added Tax (VAT) on January 1.
"There seems to be little indication of employers supporting any real wage increases to support employees with this additional cost to living. Inflation is set to rise (albeit low single digit) and the general business environment (across all sectors) is not very buoyant with relatively reduced government spending," he added.
In the Middle East, wages are expected to increase by 3.8 percent, compared to 4.5 percent last year. Inflation-adjusted wage increases are predicted to be 0.9 percent, compared to 2.5 percent last year.
Globally, the report revealed that, adjusted for inflation, employees around the world are expected to see real wage increases of an average of 1.5 percent, down from 2017’s prediction of 2.3 percent and 2016’s prediction of 2.5 percent.
The report added that across the GCC, despite a period of decline in real purchasing power, there is still a strong demand for professionals and skilled labourers, particularly in growth sectors such as hospitality, food & beverage and healthcare.
The report data was drawn from Korn Ferry’s pay database which contains data for more than 20 million job holders in 25,000 organisations across more than 110 countries.