Refugees to Provide Economic Boost to Europe, IMF Study Says

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  • Paper suggests German GDP could be 0.3% higher in 2017
  • Migrant integration in job market key for longer-term support

Despite the positive impact the influx may have on economic growth, leaders including Merkel, Sweden’s Stefan Loefven and Austria’s Werner Faymann have signaled the need to take steps to reduce numbers and stem the flow.

Photographer: John MacDougall/AFP via Getty Images

European economic growth will see an immediate boost as a result of the unprecedented influx of refugees, according to an International Monetary Fund study, handing a silver lining to leaders including Chancellor Angela Merkel as they attempt to untangle the crisis.

Gross domestic product in Germany alone, which has received about 1 million refugees including many fleeing war in Syria and Afghanistan, could expand by as much as 0.3 percent in 2017, according to the IMF report published Wednesday. Beyond 2017, the advantages will continue as long as Merkel and her fellow European Union leaders can get migrants into jobs by improving labor-market flexibility.

“The negative effects of immigrant surges tend to be short-lived and temporary,” the IMF’s Enrica Detragiache, one of the report’s authors, said in a conference call. A positive impact “should be quite immediate” thanks to the “fiscal expansion that’s being carried out to provide for the refugees,” Detragiache said.

The aggregate GDP across the 28-nation EU will rise by 0.13 percent in 2017 relative to the baseline scenario because of the migration trends, according to the report. With the German chancellor’s popularity at its lowest level since 2011 and European politicians warning of threats to the region’s social structure and passport-free travel, the IMF study shows it’s crucial for governments to get migrants into jobs to reap the economic benefits from the largest influx of refugees to Europe since World War II.

Global Effort

“Migration is a global challenge that requires a global effort,” IMF Managing Director Christine Lagarde said on Twitter before a panel debate on the topic at the World Economic Forum in Davos, Switzerland.

According to the IMF’s simulation, gross domestic product in the three countries that welcomed the largest number of refugees last year will increase in 2017 -- by 0.3 percent in Germany, 0.4 percent in Sweden and 0.5 percent in Austria relative to the baseline scenario.

If governments can ensure migrants successfully integrate into the jobs market the level of GDP could be as much as 1.1 percent higher than the baseline in the three main destination countries by 2020, the study showed.

“There will be a huge challenge to try to bring the skills the refugees can bring to the labor market in line with the demands of industry,” Detragiache said.

Despite the positive impact the influx may have on economic growth, leaders including Merkel, Sweden’s Stefan Loefven, Austria’s Werner Faymann and the Netherlands’ Mark Rutte have signaled the need to take steps to reduce numbers and stem the flow.

“The current numbers are not sustainable,” Rutte told the European Parliament in Strasbourg, France, on Wednesday. “We are running out of time.”

‘Speedy Integration’

As refugees keep arriving, Germany is pressing partners such as Greece to do more to secure the bloc’s outer border and to fulfill an EU pledge of 3 billion euros ($3.3 billion) in aid to Turkey. Otherwise Europe’s passport-free travel system could be at risk as governments take matters into their own hands and reinstall border checks.

Merkel is to host a summit with Turkish government leaders later this week, with her popularity falling to its lowest point since October 2011 in a ZDF poll. Amid open revolt within her Christian Democratic Union ranks, party leaders on Monday backed changing asylum rules to make it easier to expel citizens of Algeria, Morocco and Tunisia.

While the IMF paper’s authors caution that their figures are tentative because the exact numbers of asylum-seekers coming to Europe cannot be accurately predicted, they say the provision of support services to refugees, such as housing, health and education, will increase aggregate demand in the short term, which with supportive monetary policy, “help compensate for possible downward pressures on wages and inflation associated with the gradual entry of refugees into employment.”

“Quick labor market integration can unlock the potential economic benefits of the refugee inflow,” the authors say in the report. “Granting asylum-seekers early access to the private and public sector labor market and self-employment is a key prerequisite for their speedy integration in the workforce.”