The European refugee crisis has sparked fierce debate over whether to admit asylum seekers from Syria and Iraq on cultural and safety grounds.
But according to Credit Suisse, it makes economic sense to let them in.
In a note to clients on Monday, Christel Aranda-Hassel, Peter Foley, and Sonali Punhani at Credit Suisse say that the inflow of refugees and migrants will be positive for Europe’s economic outlook both in the short- and long-term.
“In the short term, it should add to economic growth,” says the note. “The multiplier of public outlays required to house, feed and otherwise provide for asylum seekers is roughly equal to one. Fiscal expenditure could thus add 0.2pp-0.3pp to [euro area] GDP growth next year.”
The multiplier is good news as that money would go directly back into the economy instead of the savings accounts of consumers and businesses.
“[A]ll money spent on migrant’s basic necessities is likely to fully find its way back into the economy.”
Additionally, the analysts point to an OECD report that migrants will contribute more in taxes and social benefits than they will receive.
The long-run impact could be huge
The bigger contribution, however, is in the long-run impact on the labour market of the continent.
Europe’s population is getting older, notably in Germany and Italy, increasing the number of retirees that rely on public benefits to live. Since the taxes of the working population help fund these services, the “dependency ratio” of elderly to working age is increasing.
“When it comes to potential GDP growth, European demographics are partly to blame for the subdued outlook,” said the note. “The European Commission (EC) estimates growth will average 1.1% over 2015-2023, and this is partly due to the very subdued labour input contribution which the Commission estimates stands at a mere 0.2pp.”
Migrants, say the analysts, could be the solution.
“Adding young migrant labour to the ageing workforce in Europe pushes up its long-term growth potential,” said the analysts. “More than three-quarters of migrants are of working age and thus provide a boost to labour supply in the potential growth estimates.”
Based on their analysis, the contribution of labour to potential output growth for the euro area will double from 0.2% to 0.4% annually on average from 2015 to 2023, raising potential output from 1.1% annual growth to 1.3% annual growth.
“On balance, we believe net migration should be viewed as an additional tailwind to euro area GDP growth,” the analysts concluded. “Economic growth should continue to benefit in coming years as young migrants start to become integrated into the labour market.”
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