DUBAI — A forecast issued by the Hay Group division of Korn Ferry reveals that, adjusted for inflation, employees around the world are expected to see real wage increases of only an average of 1.5 percent, down from 2017’s prediction of 2.3 percent and 2016’s prediction of 2.5 percent.

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. 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, Korn Ferry Middle East. “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.”

Employers in Saudi and 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 preparing for additional complexities of managing costs with the introduction of Value Added Tax (VAT) on Jan. 1, 2018.

The biggest impact will be on end consumer products which will see a 5% rise in all major purchases, household goods and utility expenses. 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.

Across the GCC, despite a period of decline in real purchasing power, there is still a strong demand for professionals and skilled laborers, particularly in growth sectors such as hospitality, food & beverage and healthcare. The attractiveness of these markets remains to be seen in the coming months as expatriates review their earnings and savings potential. Jordan and Lebanon saw the most notable drops in the region, with Jordan predicted to have a 1.6 percent real wage growth, down from 6.3 percent last year, and Lebanon predicted at 1.8 percent compared to 6.1 percent last year.

“These are high inflation markets growing from a small base, however high inflation has dampened the appetite of employers to raise fixed costs in salary increments and hence we see a dip in actual increases this year” said Bhatia.

Although top-line salaries will increase by 8.5 percent in Africa, high inflation means the real increase is only 1.7 percent, which is up from 0.7 percent last year. In Egypt, top-line salaries will increase by 15 percent, but an 18.8 percent inflation rate means employees will see a cut in real wages of -3.8 percent. Egypt has witnessed a steep decline and fluctuations in its foreign exchange balance and reserves leading to very high inflation in the past 12 - 15 months. Although it is a growth market with significant potential, rising costs and salaries expectations will add pressure to business margins.

With the continued uncertainty following the Brexit decision, wages in the United Kingdom are up just 2 percent. Combined with a 2.5 percent inflation rate, real wages are expected to decrease by -0.5 percent. This is in contrast to 2017, when inflation-adjusted wages in the U.K. were up 1.9 percent. Employees in two of Europe’s largest economies, France and Germany, are forecasted to see real wage rises of 0.7 percent and 0.8 percent respectively. In Asia, salary increases have slowed from the previous year, although the region is predicted to see the highest average real wage growth globally.

Inflation plays an important role in pay reviews; however, it is becoming more important that companies take a holistic approach to their costs and also review pay in alignment with their overall business strategy and related human resource strategy.

Businesses should be reviewing their competitiveness as an employer in the market and industry that they compete. It is also critical for companies to retain high performing employees who often look for other opportunities in periods of slow economic growth.

The data was drawn from Korn Ferry’s pay database, which contains data for more than 20 million job holders in 25,000 organizations across more than 110 countries. It shows predicted salary increases, as forecasted by global HR departments, for 2018 and compares them to predictions made at this time last year regarding 2017. It also compares them to 2018 inflation data from the Economist Intelligence Unit.

Korn Ferry is the preeminent global people and organizational advisory firm. It helps leaders, organizations and societies succeed by releasing the full power and potential of people. — SG