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Salary Trends 2019/20

For the fourth consecutive year, ECA’s Salary Trends Survey found that the average salary increase for locally employed staff around the world was 4% in 2019.

Nominal increases for this year have surpassed predictions made last year in the Americas and Europe. However, in the Asia Pacific and Africa & Middle East regions, the nominal increases for this year were lower than the predicted increases.

Nominal and real salary increases

In 2020, it is predicted that nominal increases globally will remain stable at 4%, with the predictions for the Europe and Asia Pacific regions expected to mirror the nominal increases from 2019. In the Americas, there is expected to be a slight decrease in nominal salaries, but the Africa & Middle Eastern region is forecast to see a slight increase.

The contrasting impact of inflation on salary awards

Inflation should be one of the key considerations when calculating pay increases, as this ensures employees are not any worse off from year to year. In countries experiencing high inflation, it is therefore natural to expect that employees receive higher nominal increases in order to offset the higher cost of living. However, sometimes this is not enough, as we will see below.

The ‘real’ salary awards shown in the chart above are calculated by factoring in the effect of inflation to the nominal increases, which shows the change in buying power.

In Ukraine, nominal salary increases have been consistently among the highest in the world in recent years, but the positive real salary change in 2019 is the first for Ukrainian employees since 2013, before Russia’s annexation of Crimea. This has come about due to falling inflation, which is forecast to continue in 2020.

Another country where salary increases have caught up to inflation this year is Turkey. Although the lira weakened further against the US dollar this year, it was nowhere near as dramatic as in 2018 and inflation has even stabilised. Nominal salary increases were higher than forecast, bringing them in line with the inflation rates this year. A real increase is forecast for next year, although the state of US-Turkey relations in the coming months could have a significant impact.

However, there have been real decreases in salaries in Egypt and Nigeria, where high levels of inflation have outstripped nominal salary increases, as illustrated in the graph above.

Stability has returned to Egypt and economic growth accelerated in 2018 and 2019 and although nominal salary increases here have been higher than those in Ukraine, local staff have not benefitted from this after receiving a real decrease in salaries this year. However, real salaries are forecast to increase to 2.8% in 2020 thanks to an expected decrease in the inflation rate.

The situation is similar in Nigeria where nominal salary increases are high but workers have experienced a real salary decrease in 2019. However, in this case they are expected to lose out again next year too. Devaluations of the naira, corruption and rapid money supply growth have contributed to the high inflation rate in Nigeria which is expected to further increase next year.

Bad news for local staff in Argentina and Pakistan

Despite the fact that Argentina saw yet again the highest nominal salary increase in the world in 2019, the effect of surging inflation wiped that out and caused a real decrease in salaries of over 25%. The economic turmoil, and the failure of the IMF bailout to stop the run on the peso, cost Mauricio Macri his presidency in the October election, but with the nominal salary increase awarded to local staff in Argentina predicted to remain the same for 2020, and with similar inflation forecast, the difficult situation for employees in Argentina looks set to continue.

Although not as extreme, there are parallels with the situation in Pakistan. It has also been the recipient of an IMF bailout, while currency depreciation and a substantial hike in fuel prices have caused inflation to increase sharply. Inflation is expected to remain high going into 2020, and with nominal salary increases forecast to be consistent between 2019 and 2020, local staff in Pakistan look set to be 3% worse off in real terms next year.

Protests in Hong Kong yet to have an effect

Months of protests sparked by a controversial extradition bill has left Hong Kong’s economy unstable and in recession. Business confidence has taken a hit, with the possibility of some companies moving elsewhere, threatening Hong Kong’s status as a financial and trading hub. Due to the political unrest, there has also been contraction in the tourism, retail and hotel sectors as people are reluctant to visit due to the instability and violence. As well as protests, Hong Kong is suffering from the trade war between the US and China.

However, despite the impact on daily life in Hong Kong, this instability has yet to affect salary increases. The nominal increases awarded by employers this year were 4% for a fourth consecutive year, with this figure surprisingly expected to stay the same for a fifth year in 2020.

Inflation was forecast to fall in 2019 but actually increased, from 2.3% in 2018 to 3% in 2019.This caused the real salary increase of 1% for 2019 to be almost half what it was forecast to be, but inflation is predicted to drop next year to allow a larger real increase of 1.4%. 

Despite the optimism of local employers, with no end to the situation in sight it is expected that mass protests will continue into next year, so this is a situation to follow closely.

VAT implementation delays: the effect on salary awards

Following the signing of a VAT union agreement by all six members of the Gulf Cooperation Council (GCC), only three members have implemented this indirect tax so far: UAE, Saudi Arabia and Bahrain.

Having already delayed the introduction of VAT, Oman and Qatar were expected to have implemented VAT this year but both countries have further postponed to 2021 and 2020 respectively.

As the introduction of VAT would increase prices and therefore inflation, it may be expected to lead to higher salary increases being planned, so delaying the introduction could have a knock-on effect on both inflation and salary increases.

Both Oman and Qatar show similar patterns, with actual inflation for 2019 being significantly lower than forecast due to the delay in the introduction of VAT. However, despite this, salary awards remained relatively consistent with forecasts, meaning employees were better off than anticipated.

With the introduction of VAT in Qatar anticipated to be in 2020, salaries are forecast to increase by 4.5%, matching the previous forecast when VAT was expected to come in. However, the inflationary effect of VAT is expected to be more modest than previously assumed, with the IMF forecasting a 2.2% rate in 2020.

If there are any further delays in the implementation of VAT in these two countries, it will be interesting to see if employers react any differently.

The outlook for 2020 – political uncertainty continues

The trade war between the USA and China looks set to continue into 2020, but this does not seem to be having an impact on pay rises awarded by employers in either country. Nominal salary increases in both the USA and China are forecast to remain steady at 3% and 6% respectively.

The trade war’s impact on inflation is predicted to be more significant for employees in the USA, however. Inflation for 2020 is forecast to be half a percentage point higher at 2.3%, further squeezing real salary increases, while inflation in China is only expected to increase by 0.1%. It will be interesting to see how the effects of trade tensions and economic slowdown affect salary increases in the two largest economies in the world.

Unsurprisingly, the date of the UK’s withdrawal from the European Union has been further delayed to 31st January 2020 and a general election has been called for 12th December 2019 to try to break the political impasse. Despite Brexit-related uncertainty, nominal salary increases are expected to remain at 3% in 2020, translating to a real increase of 1.1%. However, the outcome of the election and the next government’s Brexit approach could change things significantly, particularly in the event of no trade deal being negotiated by the self-imposed deadline of December 2020.

Top ten forecasted real salary increases - Global
Countries
Global ranking
Real salary increase 2020 (%)
India
1
5.4
Vietnam
2
5.1
Indonesia
3
4.6
Cambodia
4
4.2
Thailand
5
4.1
Ukraine
5
4.1
Philippines
7
3.7
Korea Republic
8
3.6
China
8
3.6
Bangladesh
10
3.4

Globally, median nominal salary awards are expected to remain steady at 4.0% next year, with a real median increase of 1.4%. As with previous years, the top 10 predicted real salary increases are dominated by countries in the Asia Pacific region. Real salary increases in most countries covered in the survey are expected to remain stable, with India topping the global rankings with a real increase of 5.4% expected. Only staff in Nigeria, Pakistan and Argentina are forecast to experience a salary decrease in real terms. However, as we have seen with the examples of VAT and politics a lot can change and there are many factors that affect the salary awards for locally-employed staff.

Nominal increase: the total increase in salary, including inflation/cost of living increases plus performance/merit-related increases.

Real increase: the nominal increase minus the increase in inflation.

  FIND OUT MORE

The complex macroeconomic factors at play within the setting of salaries are covered in detail in ECA’s Salary Trends Reports which are published for over 70 countries. The reports include graphical and tabular data plus economic analysis and, where possible, data for specific industry groups. Free to survey participants, they can also be purchased either individually or as a full set.

To find out more about the 2019 Salary Trends Survey and its findings, you can view the press releases on our News page.

The latest currency and inflation news is covered in ECA’s blog. You can sign up to follow our blog to receive notifications when new posts are published.

  Please contact us to speak to a member of our team directly.

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