The economic impact of the refugee crisis

The economic impact of the refugee crisis

The  Swedish Migration Agency (Migrationsverket) estimates that around 300,000 people will seek asylum in Sweden 2015-2017. But while the country is scrambling to help its newly arrived, economists say that the refugee crisis could boost the Swedish economy as the growth in immigration expected in 2016 will cause the workforce to grow and thus raising Swedish growth potential.

In recent weeks, a number of different economic forecasters have looked at the effect of the influx of refugees on the Swedish economy.  Generally, the consensus appears to be that the near term effect on economic growth are positive, as a sudden increase in the population leads to extra demands for goods and services. In its October report the Riksbank decided not to forecast the effect on macroeconomic indicators, however it noted that short-term growth would be increased, particularly demand of food, housing and healthcare.[1]  Other forecasters views coalesce around an improvement to growth of 0.5 per cent, with both SEB[2] and Nordea[3] citing this figure. The growth in immigration expected in 2016 will cause the workforce to grow, which “raises Swedish growth potential and reduces the negative economic effects of an ageing population,” according to Torbjörn Isaksson, Head Analyst at Nordea. Near-term growth will also be supported because the government is going to finance refugee outlays in part by increased borrowing, making an exception to Sweden's normal fiscal rules.  SEB expects the government's expenditure ceiling to be raised, and the surplus target for government finances to be postponed.

For a longer-term view, the experts are reluctant to give any firm guidance; with all of them agreeing that there are too many unknowns, both in terms of the immigrants themselves, and Swedish political outcomes, to take a view. The OECD, which looked at the economic effects of refugees give the clearest explanation as to why, saying 'that the past gives us few clues ... most existing research focuses on the impact of total integration (... the share of refugees is quite small)'.  Below, several of the factors and indicators are discussed.[4]

The Riksbank's analysis uses Statistics Sweden (Statistiska Centralbyrån, SCB) data, which forecasts that around 160,000 refugees would enter Sweden in 2015, with 135,000 in 2016, for a total increase of around 3 per cent of the total Swedish population. The Riksbank presents a dramatic graph, showing snapshots of their view of the working-age population taken between 2010 and 2015. As recently as 2011, the Riksbank's view was that Sweden's working-age population would be just over 7.2 million people in 2020.  But, their current forecast has now increased the 2020 forecast to almost 7.6 million.

The Riksbank observes that while Sweden's labour market works well generally, there is a 'great difference' in employment rates between natives and the foreign-born.  For those born in Sweden the employment rate is 68 per cent, whilst for those born outside of Europe the equivalent figure is only 55 per cent.  Nordea quotes that the unemployment rate for foreign-born is 16 per cent, far above the overall level of unemployment, which is 7 per cent.  SEBs analysis focuses more on the positive aspects of immigrants, noting that there has been 300,000 increase to jobs growth to the foreign-born over the last decade, but only 200,000 for Swedes.  SEB also says that unemployment will be positively affected in the short-term, due to increased demand.  But, this is more a matter of statistical representation, as refugees do not count in the statistics until they have been processed, and are declared part of the labour market.  By 2017, the unemployment rate will be rising.

Becoming established in the Swedish labour market

The Riksbank notes that Sweden has a high proportion of refugee and family-member immigrants compared with other countries, which they say, is one reason that it takes immigrants such a long time to become established.  It notes that job opportunities for the foreign-born are low for these groups, which presents a 'major challenge for the ... Swedish system'.  Further risks exist in that processing times for refugees are likely to become prolonged, delaying decisions on their refugee permits, housing and entering 'introduction programs'.  Nordea estimates that typical processing times will blow out from 3 to 9 months. SEB says that these will be affected by the extent of shortages in the labour market, but it expects the impacts to be small, around 0.2 per cent.  Given the subdued context of the Swedish labour market it expects that inflation will remain low. The Riksbank view is more to defend its position, saying that while its expansionary monetary policy contributes towards demand, and therefore jobs, the structural challenges in the labour market cannot be solved by monetary policy, i.e. the repo rate.

Integration policy and the economy

Historically Sweden has had success with integrating previous waves of migrants - large-scale migration from the Balkans being one example to point to. Naturally, the Riksbank does not speculate about such politically-charges matters.  But, SEB is clear that integration needs to be improved versus what has been achieved in recent years, observing that the total number of migrants expected in a four-year period is three times that absorbed during the 1990s.  SEB continues, saying that “it will take time to achieve orderly resettlement, and a large percentage of refugees will be placed in rural areas with weak labour market situations”.  Whilst noting that society generally wants to improve integration, SEB sees the risks of unresolved tensions between left- and right-wing solutions to issues.  The Alliance parties have begun to argue for changing labour laws, i.e. lower wages.  But unions want to solve unemployment whilst simultaneously defending the status quo of the Swedish social/labour model, which they believe can be achieved through training and by providing tax subsidies.  Nonetheless, SEB concludes by saying that “with so much at stake, there will be heavy pressure on the political system, perhaps making it easier to slaughter sacred cows”.[5]

[1] http://www.riksbank.se/Documents/Rapporter/PPR/2015/151028/rap_ppr_151028_eng.pdf

[2]http://sebgroup.com/siteassets/corporations_and_institutions/prospectuses_and_downloads/research_reports/nordic_outlook/2015/no_1511_eng.pdf

[3] https://nexus.nordea.com/#/article/23503

[4] http://www.oecd.org/migration/How-will-the-refugee-surge-affect-the-European-economy.pdf

[5]http://sebgroup.com/siteassets/corporations_and_institutions/prospectuses_and_downloads/research_reports/nordic_outlook/2015/no_1511_eng.pdf

 

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Jessica Nilsson Williams is the CEO & Founder of Mundus International. She has a long-standing interest in international affairs, having studied and worked in the field for more than 20 years. She began her career as the political advisor at the U.S. Embassy in Stockholm, and then worked in London and Singapore before returning to Stockholm. In 2011 she took up a senior role at the New Zealand Embassy before founding Mundus International in 2012. In addition to working for foreign missions, she has worked in sectors such as NGOs and non-profit organisations (e.g. the Clinton Foundation and the International Red Cross), and television. Jessica is a Member of the Board of the Swedish Cricket Federation.