Daimler Chief's Migrant Miracle Hinges on German Integration

  • Short-term growth boost may translate to longer-term benefits
  • With low birth rate, Germany needs to find workers elsewhere

When Dieter Zetsche said an influx of migrants into Germany could produce the country’s next economic miracle, he had a point -- albeit an optimistic one.

With 1 million people potentially destined for Europe’s largest economy this year, integration will be key to realizing the Daimler AG chief executive’s vision for a renewed boom, according to economists and researchers. What is now a humanitarian crisis could ultimately prove to be part of the solution to the challenge that Chancellor Angela Merkel has singled out as one of the biggest her country faces in the decades to come.

“Germany has a strong need for immigration,” said Kristian Toedtmann, an economist at Dekabank AG in Frankfurt. “But these people are not coming for economic reasons in the first place. They do not have concrete plans for the next few years. It’s much too early to say how integration will work.”

Economists agree Germany needs fresh workers to counter its feeble birth rate, one of the world’s lowest. A study released in May by consultants BDO AG and the Hamburg Institute for International Economics showed the rate even fell below that of Japan, long the poster child for a demographic downturn, with about 8.3 newborns per 1,000 citizens in the five years through 2013.

The number of people of working age in Germany will shrink by 8.5 million by 2030 and another 8.7 million by 2050, from about 45 million now, according to the research institute of the country’s labor agency. Even taking into account current trends in migration and the participation of women and older employees, the drop will be 3 million by 2030 and another 5 million by 2050.

GDP Effect

Still, as well as the immediate logistical challenges of handling refugees and economic migrants, who almost by definition come from weaker economies, negative effects can show up in initial data.

“Per capita gross domestic product almost always goes down for a while,” said Erik Nielsen, global chief economist at UniCredit SpA in London. “This is because the immigrants typically make less than the average existing population. But there is no evidence that that decline in average per capita GDP is anything but the arrival of poorer people; importantly, it does not reduce the income of the existing population.”

UniCredit estimates that the short-term economic effect will come from government spending on refugees and will be “rather low” at about 0.3 percent of German GDP over the next 12-18 months. The longer-term impact, assuming a successful labor-market integration, will be to lift GDP by a total of 1.7 percent by 2020, it estimates in research published by economist Andreas Rees.

Rebalanced Economy

Immigration could also help Germany rebalance its economy toward domestic spending, addressing criticism that the country is living off its trading partners by running a record current-account surplus, according to Rolf Langhammer, a professor at the Kiel Institute for the World Economy.

“The signals point in one direction: more domestic demand, a weakening propensity to save, slower increases in labor productivity,” he said in e-mailed comments. “Public employment will expand as will the sector for basic, low-skilled services -- the only open employment area for refugees in the short term -- and construction.” 

Zetsche, who drew parallels with California’s Silicon Valley, highlighted the challenge for Germany by referring to the “Herculean task” of managing the current inflows. He said it would be an “ideal case” if the migrants help foster an economic upswing similar to the country’s postwar boom in the 1950s and 1960s.

Trainee Jobs

Zetsche said Daimler will support housing for migrants in its home state of Baden-Wuerttemberg and match donations by employees. Martin Winterkorn, the CEO of German carmaker Volkswagen AG, said his company would seek to find trainee jobs for immigrants.

“It’s certainly good” in the long term to have an influx of immigrants who can help to outweigh Germany’s lack of population growth, though it will require a significant effort, said Andreas Renschler, VW’s trucks chief.

UniCredit notes that after World War II, more than 12 million refugees came to East Germany and West Germany, and another 2.7 million fled from the former to the latter before the Berlin Wall was built in 1961. While those migrants had the advantage of a common language, the more important issue was their contribution to productivity and demand.

“At the moment, not much is known about the qualifications of the refugees and the share of those who are of working age,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. “It’s entirely possible that the models simulating long-term population developments, employment and economic growth will have to be fed with new data -- with the outlook then appearing somewhat more favorable.”

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