Real wages are projected to increase in 2018, a positive indicator of continued economic recovery that should help Dubai see increased economic activity even with the arrival of a new VAT.
After a few years of uneventful economic performance, international observers are projecting positive growth in 2018. Dubai, already in a better position than many other GCC states due to its diversified economy, has an especially strong outlook thanks to an expected recovery in oil prices and increased construction activity in the run up to Expo 2020.
One of the most telling indicators of recovery is wage growth, which government and industry leaders are keeping an eye on to gauge hiring practices and the strength of consumer demand across industries. Early indicators suggest that 2018 will bring about a robust increase in wages; consulting firm Aon reported in late 2017 that UAE employers are projected to increase salaries by 4.3% in 2018, the second-highest rate in the GCC behind Saudi Arabia. Well above inflation, this would be one of the strongest indications that things are moving in the right direction.
2016 saw UAE salaries increase by 4.4%, a real increase of 0.9% when inflation is taken into account. This came in an environment that saw Dubai’s GDP growth rate fall from 4% in 2015 to 2.7% in 2016, due to low oil prices and corresponding decreased consumer demand. This was still slightly better than the UAE as a whole, which saw growth of 2.6%. However, both Dubai and the IMF expected a stronger performance in 2017, with the IMF expecting 3.3% growth and the Dubai government forecasting 3.1%.
Salary growth is a significant indicator of economic health. Performance has varied by sector, but early indicators in 2017 are that nominal wages will rise 4-6% across the board. Dubai-based consulting firm Cooper Fitch reported that some of the largest increases came in the marketing and digital sectors, which were projected to see increases of 6-10% and 10-12%, respectively. More downward pressure is expected to be applied in the finance and legal industries, where salaries were only expected to keep pace with inflation due to greater supply of workers from GCC institutions in these fields.
Through October 2017, results had largely matched these expectations. Aon’s report found that salaries had increased by 4.3% in the UAE, tied with Kuwait for the second-highest rate in the GCC. Aon’s report noted that, true to predictions, the high-tech sector reported the largest wage increase throughout the UAE, with wages rising an average of 5.2%, while banking and finance saw increases of only 3.8%.
Looking toward 2018, the forecast is more optimistic. Only 5% of the 323 UAE-based firms surveyed by Aon anticipated freezing salaries in 2018, and the consulting firm estimated that the UAE would post an average wage increase of 4.3% in 2018. This is in line with projections for an economic bounce-back in Dubai and the UAE as a whole; the IMF reported in late 2017 that it anticipated 3.4% real GDP growth for the country in 2018. Within the wider economic climate, industry leaders are keeping an eye on two factors for a possible effect on wages: public spending and the arrival of VAT.
The UAE saw public spending dip over the past two years, but this shifted in 2017 as the government helped support major construction projects with public money. In Dubai, this meant several Expo-2020-related megaprojects started development, generating new levels of activity and hiring across a wide range of sectors. International observers expect this public spending to continue and spur new growth over the next three years. The Emirates also introduced a new 5% VAT in 2018, the first such consumption tax in the GCC. With economic activity on the uptick and salaries rising to match, it appears that the VAT will have a minimal impact on consumption habits while shoring up the Dubai government’s fiscal position.
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