Recent years have seen salary increases for locally-employed staff struggling to keep pace with spiking inflation. But due to inflation falling faster than nominal salary increases in the past year across many countries, employees (and employers) will be pleased to hear that ECA’s latest Salary Trends Survey supports a more positive outlook, with a return to real-terms salary growth seen this year and forecast to continue next year.
The real-terms salary increases displayed above are calculated by taking the salary increase awarded to employees by their employers (the nominal increase) and subtracting the rate of inflation.
Salary increases finally overtake inflation
As forecast last year, salaries have indeed returned to real-terms growth, largely thanks to the continuing downward trend in inflation. A global average real salary rise of 1.8% for 2024 is a significant improvement on last year’s 1% fall and is a better result than expected; while nominal increases stayed in line with predictions, inflation was on average lower than forecast across the countries surveyed.
Looking ahead to 2025, both inflation and nominal salary increases are forecast to be lower in the majority of countries surveyed. Crucially though, above-inflation pay awards are expected in most countries, so we are likely to see a second consecutive year of real-terms increases globally – no doubt welcome news following the decreases seen in 2022 and 2023. Although the forecasted increase of 1.8% in real terms is no change on the figure for 2024, over 90% of countries surveyed are forecast to see a real-terms increase in 2025, compared to 82% in 2024.
Regional contrasts
While real salary increases are expected to be flat globally, the picture varies significantly by region. As shown in our infographic, Europe is expected to have the weakest performance – it is the only region where real salary rises are expected to be lower in 2025 compared to 2024.
This is despite inflation being forecast to fall by a greater amount on average in Europe than in other regions between 2024 and 2025 (it has further to fall here relative to other regions, given that Europe experienced some of the biggest spikes). The issue is that nominal salary increases in Europe are falling too – all but two countries (Italy and Switzerland) are projected to see shrinking nominal increases in 2025.
Although nominal increases are falling in most European nations surveyed, they are still forecast to be considerably higher than historical average levels. As a result, there is significant potential for further downward movement in the future. The outlook for real salary movements in 2025 and beyond may therefore come down to what drops faster – inflation or nominal pay changes. For 2025 at least, no European locations are forecast to see a real-terms salary decrease.
This pattern is not just restricted to Europe. Many large Western economies have had similar battles with inflation in recent years, and countries such as the USA and Canada are predicted to join European nations like France, Germany and the UK in seeing both lower inflation and smaller nominal salary increases in 2025. All five are expected to see similar increases of just under 2% in real terms.
In contrast, Asia did not experience inflation spikes as significant as those seen elsewhere, so countries here have seen inflation settle down more quickly. It is also the only region not to have experienced a real-terms salary decrease in the past five years. Some of the more developed locations such as Singapore (1.8%), Hong Kong (1.7%) and Japan (1%) are towards the bottom of the regional rankings, but the real salary increase forecast for the region in 2025 is the largest in the world once again at 2.5%, with countries such as India (5.1%), Thailand (3.8%) and China (3.3%) driving this.
A calmer outlook?
The results of this year’s survey suggest calmer conditions than seen in the first half of the 2020s, with both nominal salary increases and inflation starting to return to historic norms. This offers some respite to both employers and employees. However, as we have seen in the past, figures can deviate significantly from what was forecasted in reaction to global events. The return of Donald Trump to the White House is already provoking fears of higher inflation, with increased potential for a global trade war following the EU’s recent move to impose tariffs on Chinese electric vehicles. Meanwhile, deepening GDP slowdowns in China and Germany could cause more economic headwinds, in turn affecting businesses’ ability to increase pay. So while the global economic situation appears calmer for now, pay and inflation forecasts may well be tested by a return to economic volatility.
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 and cities. 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.
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