Salaries in the UAE are not expected to keep pace with inflation this year following the introduction of a 5 per cent value added tax rate, according to Korn Ferry Hay Group.
The human resources consultancy said wages across the Middle East were expected to increase 3.8 per cent this year from 4.5 per cent last year.
However, inflation adjusted wage increases are expected to be as little as 0.9 per cent compared to 2.5 per cent in 2017.
In the UAE, the firm said expected inflation of 4.6 per cent would offset pay increases of 4.1 per cent, meaning real wages would actually fall by 0.5 per cent.
Similarly in Saudi Arabia, salaries were expected to increase 3.2 per cent this year, barely ahead of the 3.1 per cent inflation rate, meaning a real wage increase of just 0.1 per cent.
Salaries in the kingdom increased 5 per cent last year, but 0.8 per cent in real wage terms, according to the firm.
“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,” Korn Ferry Hay Group said.
The introduction of VAT is placing additional pressure on businesses as they seek to ensure they are compliant with the law, while the costs of everyday goods like food, fuel and utilities are increasing for consumers.
Recruiters that participated in the Gulf Business 2017 Salary Survey indicated the increasing cost of living from value added tax would mean employees could ask for pay rises of 8-12 per cent this year and next year.
However, companies are deemed unlikely to give in to these demands.
Elsewhere in the GCC region, countries that have yet to implement VAT under a wider regional agreement offer better pay prospects.
Korn Ferry Hay Group forecast salaries in Bahrain would increase 4 per cent with an inflation rate of 2.1 per cent, meaning a real wage increase of 1.9 per cent.
Salaries in Qatar are expected to increase 3.7 per cent against inflation of 2.6 per cent, meaning a real wage increase of 1.1 per cent.
Those in Oman are expected to increase 3 per cent versus inflation of 2.2 per cent, meaning a 0.8 per cent real wage increase, and salaries in Kuwait are expected to increase 4.3 per cent against 3.6 per cent inflation for a real wage increase of 0.7 per cent.