Brussels, 05/11/2015 (Agence Europe) - The European Commission believes that the massive influx of refugees into the European Union, which is weighing down the public finances of the member states concerned, will have a low but positive economic impact, in the order of 0.2% to 0.3% of GDP, between now and 2020.
“You sometimes hear, in the political discourse, an underlying argument which is (…) that the influx of refugees will have a negative impact on growth or will flood the employment markets. The analysis we have produced shows that - under certain conditions and not without an incentivising, accompanying and integrating public policy - that it is more likely that there will be a favourable macroeconomic effect, slightly positive, not massive, greater, of course, in the host countries. This supports the policy recommended by this Commission since the start of the refugee crisis”, said the Commissioner for Economic and Financial Affairs, Pierre Moscovici, presenting the autumn economic forecasts of the Commission on Thursday 5 November. Calling for the figures to be taken cautiously, he placed the impact of the refugee influx in a range of between “0.2% and 0.3% of GDP” by 2020.
According to the European institution, an additional three million people will arrive in the EU over the period 2015-2017. Initially, the impact of their hosting and integration will weigh negatively on the national budgets: - for the transit countries, by 0.2% of GDP in 2015, to stabilise in 2016; - for the host countries, 0.2% of GDP in 2015 with a slight increase for certain countries in 2016. In Sweden, the country which is hosting the highest number of refugees per head of population, the impact has been put at 0.5% of GDP.
Taking the example of Germany, the favoured destination country, the Commission assessed the economic contribution of migrants at 0.4% in 2016 and 0.7% of GDP by 2020, if the migrants have equivalent qualifications to the local labour force, or at 0.4%-0.5% of GDP in the medium term if the migrants are less qualified than the population already present on German soil.
In the absence of a decision by the College, the Commissioner declined to state how the Commission would take account of the impact of the migration challenge in its analysis of the 2016 draft budgets, which will be presented with the extraordinary Eurogroup meeting of Monday 23 November. Speaking before the European Parliament, the President of the Commission, Jean-Claude Juncker, called for flexibility in interpretation of the European budgetary rules, on a case-by-case basis (see EUROPE 11419). Austria, Belgium, Italy and Finland referred to the impact of hosting refugees on their public finances in their 2016 draft budgets. Internationally, the question of the migration challenge, seen from the economic point of view in particular, will be discussed at a dinner of the G20 leaders in Antalya on Sunday 15 November (see EUROPE 11424).
Moderate recovery. Having forecast average GDP growth of 1.5% in the eurozone and 1.8% in the EU (see EUROPE 11247), the Commission is now predicting slightly higher growth, at 1.6% in the EU of 19 and 1.9% in the EU of 28 in 2015. In 2016, assuming no major changes, the creation of wealth is expected to stand at 1.8% of GDP in the eurozone and 2.0% at EU level.
There is indeed moderate economic recovery, brought in by “tailwinds” such as a weak euro, low energy prices, an accommodative monetary policy, growth in lending and in internal consumption, Moscovici said. He noted that the downturn in the global economy, notably in China, has slowed European exports.
As ever, there are considerable disparities between the member states. In 2015, growth will be highest in Ireland (+6% of GDP), Malta and the Czech Republic (+4.3% each), Poland and Romania (+3.5%), Slovakia (+3.2%) and Spain and Luxembourg (+3.1%). It will be steady in Germany (+1.9%) and modest in France (+1.1%) and in Italy (+0.9%). Only Greece, which is under a third financial bailout plan, will be in recession in 2015 (-1.4%) and will remain so in 2016 (-1.3%).
As regards the public deficit, the Commission welcomes overall neutral policies on a budgetary level. In fact, deficits are continuing to fall throughout the EU with the exception of Greece (-3.6% of GDP in 2014, -4.6% in 2015), Lithuania (-0.7% in 2014, -1.1% in 2015) and Denmark (+1.5%; -3.3%), although this is a mixed tendency. In 2015, eight member states will have a deficit equal to or greater than 3% of GDP: Croatia (-4.9%), Spain (-4.7%), Greece (-4.6%), the United Kingdom (-4.4%), France (-3.8%), Denmark (-3.3%), Finland (-3.2%), Portugal (-3.0%). In 2016, this threshold of 3% of GDP is expected to be crossed by France (-3.4%), Spain (-3.6%) and Greece (-3.6%), Moscovici said.
It is worth noting that the Commission returned a more pessimistic estimation of the Spanish deficit for 2015 and 2016 than in its recent opinion on the Spanish draft budget for 2016 (see EUROPE 11408).
As regards public debt, the fledgling bounce-back was consolidated in 2015 compared to 2014, with a drop in the average debt/GDP ratio from 94.5% to 94.0% in the eurozone and from 88.6% to 87.8%. Here again, there are notable differences between the countries. In the eurozone, indebtedness will continue to be highest in Greece (194.8% of GDP in 2015, compared to 178.6% of GDP in 2014), Italy (133.0% from 132.3%), Portugal (128.2% from 130.2%), Belgium (stable at 106.7%), Cyprus (106.7% from 108.2%) and Spain (100.8% from 99.3%). It will be lowest in Estonia (10.0%), Luxembourg (22.3%) and Latvia (38.3%).
Countries under a programme. Essentially, the Commission's analysis is that Greece has shot itself in the foot, despite having experienced some upturns since 2014. “The unsuccessful conclusion of the economic adjustment programme, the referendum called in June of this year, the ensuing closure of banks and the introduction of measures to control movements of capital increased uncertainty and worsened growth prospects”, it states in its report. However, Moscovici stressed the country's prospects of bouncing back in the second half of 2016. “The prerequisite for this is continued reforms”, he warned, however. In its autumn forecast, the Commission anticipates that in 2017, growth in Greece will be less than it predicted in May 4, 2016, with recession in 2015 (-1.4% of GDP) and in 2016 (-1.3%), followed by an upturn in 2017 (+2.7%). In May, it predicted growth of 0.5% in 2015 and of 2.9% in 2016. The debt figures (194.8% of GDP in 2015, 199.7% in 2016 and 195.6% in 2017) are to be taken with a pinch of salt, particularly as they take account of the entire envelope of the aid plan for the recapitalisation of banks (€25 billion, or 14% of GDP), yet the requirements of the Greek banks have been put at €14.4 billion (see EUROPE 11423).
After three years of recession, Cyprus returned to growth at the start of this year, although the island could continue to suffer from sanctions targeting Russia and too slow a pace of the cleansing of its non-performing loans. Cypriot growth will stand at 1.2% of GDP in 2015, 1.4% in 2016 and 2% in 2017. Public debt will come back below the 100% mark to stand at 98.7% in 2016 and 94.6% in 2017. Additionally, Cyprus may not have to use all of the money available to it in the framework of its bailout plan (see EUROPE 11406), with possible implications for its debt.
Countries outside the eurozone. The growth forecasts for the United Kingdom, which do not take account of a potential UK exit from the EU, are largely unchanged since May. The Commission is still predicting steady growth in the country: 2.5% of GDP in 2015, 2.4% in 2016 and 2.2% in 2017. However, this growth will not be balanced. Internal growth will continue to increase rapidly, whilst net exports will continue to weigh down growth. The British deficit will continue on its downward slope (3.9% of GDP for the period 2015-2016, 2.4% for 2016-2017 and 1.5% to 2017-2018). In June, the Ecofin Council gave London until the financial year 2016-2017 to bring its deficit below 3% of GDP. Debt is expected to stabilise at 88.3% of GDP in 2015, to fall in 2016 (88.0%) and then in 2017 (86.9%).
The Commission anticipates healthy growth for Poland over the period 2015-2017 (3.5%), led by internal demand and, in particular, private consumption. The solid growth of exports to the EU have more than offset the negative developments on the Russian and Ukrainian markets. Exports are also expected to continue to experience steady growth due to the weak zloty, production costs under control and the anticipated increase in external demand in 2016 and 2017. Any worsening of the Russian-Ukrainian crisis could, however, negatively affect Polish exports. There is uncertainty regarding the initiatives the new government, which was elected at the end of October, may take (see EUROPE 11418). It will be necessary to wait and see what the government decides to do, Moscovici said. (Original version in French by Mathieu Bion and Elodie Lamer)