Slowdown in salary increases in UAE, rest of GCC

Wages expected to stagnate in 2018 due to inflation, 'unfavourable' macroeconomic environments

Dubai: Many UAE consumers may face further strain on their wallets, with the growth in household incomes forecast to slow down or stagnate for the rest of the year and in 2018.

According to the latest analysis by Oxford Economics, workers’ earnings are likely to face pressures on account of higher living costs, including the introduction of value-added tax (VAT), and “unfavourable macroeconomic environments.”

The company said that for the remainder of the year, real salary growth in the UAE, which includes pay rises granted by companies or earned by employees through promotion and moving jobs, will be at 2.9 per cent, down from 3.6 per cent in 2016.  

“Looking ahead to 2018, we expect real wage growth to stagnate,”  Mohamed Bardastani, senior economist for Middle East at Oxford Economics, told Gulf News, adding that the implementation of a 5 per cent VAT in January next year will again “feed into higher levels of inflation.”

A separate report by Korn Ferry Hay Group Middle East released on Sunday also noted that the number of companies granting wage hikes has fallen this year.

Only 25 per cent of UAE employers awarded pay increases to less than half of their staff. A similar trend is seen in Saudi Arabia and Qatar, with less than 50 per cent of companies issuing base salary increases this year.

"Bonus payments have been in decline since 2015 and we suspect the trend to continue into 2018," said Vijay Gandhi, regional director at Korn Ferry.

However, good performers at work are still being rewarded, and the overall GDP growth in the region remains "healthy" although at a slower pace than in the past five years.

“We see greater rewards for individuals with a higher rating and the difference between average and high performers widening as organizations use higher accelerators for top performance," said Gandhi.

Oxford Economics has recently collaborated with recruitment specialists Hays to look into the employment conditions in the UAE. They found that overall, employers are facing easing pressures, as it is now easier to hire and retain professionals compared to last year due to high availability of talent, and salary increases have slowed down.

Chris Greaves, managing director at Hays Gulf, said that employers now have a larger pool of available candidates to choose from, and this is partly due to cost-cutting activities within many organisations.

According to Emirates NBD Purchasing Managers’ Index (PMI), more jobs were created in September but employment growth was at a slightly slower rate than in August. The staff cost index, used as a proxy of wages, also continued to decline this year.

Analysts said that the macroeconomic environments remain “unfavourable”, while higher inflation is expected to eat into household incomes. Lower oil revenues also leave a small chance for organisations to grant salary increases.

“The unfavourable macroeconomic environment can be described by sustained levels of low oil price continuing to weigh on economic growth,” said Bardastani. “Lower incomes for the government and the private sector from low oil price leave a small room for wage growth.”

And while salaries have hardly moved, living costs seem to be picking up pace, with inflation rate in the first five months of the year reaching 2.2 per cent, mainly due to price increases in gas, water, electricity and transportation.

“With the UAE’s plan to introduce an excise tax in October this year, we expect price levels to rise further,” said Bardastani.

“The weakening of the US dollar this year could also translate into higher import prices for the UAE, which maintains a peg with the US dollar. As real wage is inflation adjusted, higher inflation levels leave small room for real wage growth.”