Germany’s acceptance of hundreds of thousands of migrants is set to weigh on its public finances in the near term, then provide a modest boost to Europe’s biggest economy, before the costs and benefits finally cancel each other out, according to the Bundesbank in its latest set of economic forecasts. Here’s a look at the central bank’s assessment of Germany’s migrant influx:
- Immigration will likely boost German labor supply by about 500,000 people by 2017.
- Initially, unemployment is set to rise “owing to low or irrelevant skills, as well as cultural and linguistic barriers.” But migrants generally won’t snap up jobs otherwise occupied by Germans, because of differing skills sets – at least not in the next few years.
- Government spending may rise by of about €20 billion ($21.8 billion) in 2017, or “just under 0.75% of GDP” in 2017, compared with government spending in 2014, ahead of the refugee crisis. Germany provides basic social support to migrants, such as housing, language courses and other cash and non-cash transfers.
- Aggregate demand should rise considering higher government expenditure probably won’t be offset by savings or tax increases elsewhere. The effect would be like a “stimulus package,” boosting GDP by 0.25% this year and perhaps nearer 0.75% in 2017 compared with how the economy would have otherwise have performed.
- The extra migration could lift Germany’s potential growth rate from 1.2% to 1.3% for the next two years.
- It’s all temporary. The economic stimulus “will reverse once the negative effect on public finance is offset.”
- And there is uncertainty about exactly what impact there will be on the German economy in the long run. “The supply effects and the long-term impact on public finances will largely hinge on how quickly and effectively refugees are integrated into the labor market.”
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