Hiring and keeping qualified staff is an increasing problem for companies in Central and Eastern Europe (CEE), which is likely to lead to further salary hikes in 2015, reveals the latest KPMG survey Economic Pulse 2014.

In a poll of 456 business leaders from eight countries – the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia (the “CEE8”), 69% said they planned to raise staff salaries in 2015, with 50% saying the increase could be up to 5%. The most likely increase, as indicated by 37% in the CEE8, will be between 2.0% and 4.9%. For 41% of those surveyed, a shortage of qualified staff and pressure from employees are the main drivers for pay rises while 28% think they should be the result of higher productivity and 25% expect to award rises due to improved financial performance. On average, 50% do not plan any notable staff changes, but 17% expect to have at least a 5% to 10% increase in employee numbers.

These renewed pressures faced by employers come against a backdrop of a fairly upbeat economic outlook in the CEE8 for 2015. 52% of survey respondents expect their country's GDP to increase by 1.0 to 2.9% and only 9% predict a decrease. 52% also believe that inflation will remain under 2.0%.

“According to the survey results, the CEE8 economies are following a path of healthy GDP growth and low inflation, but as skilled labour and the ability to export are the key drivers of economic competitiveness, the focus in the surveyed companies is increasingly on the quality of employees,” comments Serban Toader, Senior Partner at KPMG in Romania.

“Most business leaders in the region also support the reduction of social security contributions” added Ramona Jurubiță, Head of Tax at KPMG in Romania, who oversees the firm’s International Executive Services team. “This would be a way to further strengthen companies' competitiveness. There is also strong support among those surveyed for simpler collection and administration of taxes, as well as for a flat tax as opposed to a progressive system.”

Within the CEE8 as a whole, 75% of respondents think that the shadow economy is a problem and that tax avoidance by concealment of real income is a pressing issue.

According to the KPMG survey, stiff competition and low demand in the local market are the issues most likely to restrict turnover growth in the CEE8. However, 81% of the business leaders surveyed expect their turnover to grow in 2015, mainly driven by higher staff productivity and more intense marketing efforts.

Sixty-nine per cent of business leaders who participated in the survey are planning investments in 2015-2017 with activity concentrated on their home markets and on neighbouring countries.

About the survey

In September 2014, KPMG member firms surveyed business leaders in eight CEE countries, asking them to share their opinions on their national economies, the euro, foreign investments, the tax environment and on company remuneration and staffing policies. Previously held for several years in the Baltics, for the first time KPMG's “Pulse of Economy” covered eight countries in the region. The web-based survey collected responses from 456 executives, managers and company owners in those countries included in the survey.

By business sector, industry accounted for 29% of responses, followed by wholesale and retail trade (14%). Forty-four per cent of respondents came from companies with less than 50% of their shares held by residents, that number being the highest in Hungary (67%). Eighty-nine per cent of respondents represent top company management and 11% company owners, while 30% are females. Fifty per cent of respondents are from companies with turnover exceeding EUR 25m and 65% of the companies are active in export markets.

About KPMG

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

KPMG in Romania and Moldova operates from six offices located in Bucharest, Cluj-Napoca, Constanta, Iasi, Timisoara and Chisinau.